UK Financial Conduct Authority publishes dear CEO letter for custody and fund services

The U.K. Financial Conduct Authority has published a Dear CEO Letter setting out its supervision strategy for firms in the custody and fund services sector. The custody and fund services sector broadly covers firms acting as third-party custodians, depositaries for both authorized and non-authorized funds, and third-party administrators who provide services such as fund accounting and transfer agency.

Key risks for firms in this sector include: (i) operational resilience—the FCA expects to see strong ownership of operational resilience by management bodies. Firms should review and approve annual operational resilience self-assessments as required under PS21/3; (ii) cyber resilience—firms should make effective use of threat intelligence-led penetration testing to help ensure a robust environment; (iii) third-party management—the FCA will assess firms' third-, fourth- and Nth-party oversight, including key material supplier relationships and management and expects firms to have effective processes for monitoring and managing third-party risks; (iv) change management (e.g., updating of technology and adoption of AI, as well as wider market changes)—the FCA will seek to assess the change management frameworks in a selection of firms. Firms are advised to consider best practices identified in its implementing technology change multi-firm review; (v) market integrity—the FCA's supervisory engagements will review the effectiveness of select firms' systems and controls, governance processes, and resource sufficiency in connection with sanctions regime compliance; (vi) depositary oversight—the FCA expects depositaries to act more proactively in the interests of fund investors; and (vii) protection of client assets—the FCA expects firms to review their practices and to have considered and be appropriately prepared for developments such as the increasing use of distributed ledger technology and the future financial services regime for cryptoassets.

Return to main website.