UK FCA guidance on asset management authorisation applications

The UK Financial Conduct Authority (FCA) has published findings from authorisation applications received from firms seeking to operate in the asset management sector, setting out examples of good and poor practice for firms.

Key findings include:

• Office location: The FCA expects day-to-day management decisions to be taken in the UK. The FCA noted concerns where key decision makers were unable to do so without overseas approval, or were managed by offshore senior managers.
• Outsourcing: Firms are expected to show accountability for compliance with relevant rules when outsourcing activities to third parties. Some firms demonstrated this using service level agreements to oversee and monitor activities.
• Business models: Firms are expected to assess the full risk of their activities to consumers, including compliance with the consumer duty when dealing with retail clients. Some firms failed evidence this, with some business models posing an unacceptably high level of risk, particularly to retail clients.
• Conflicts of interest: There were mixed findings around firms' ability to demonstrate conflicts identification and management through maintaining registers and documenting reviews.
• Understanding regulatory status of clients: Firms are expected to demonstrate clear understanding of their client types and the applicable regulatory requirements. Weaker firms failed to show how they would categorise or engage with clients, creating potential risks of client harm.
• Redress: Clients should have access to appropriate schemes (like the UK Financial Ombudsman Service) to protect them, which some firms did well to explain how they would apply. However, the FCA identified certain firms as inappropriately seeking exemptions from the schemes or as incorrectly assuming that such schemes only apply to retail clients.
• Variations of permission: Firms should clearly explain how any activity, investment or client type changes will impact their business. Good practice included detailed explanations of business model changes, supported by financial forecasts and staffing plans. However, some firms claimed such changes would have no material impact, which the FCA considered unlikely.
• Fund particulars and mandates. Firms should provide sufficiently detailed fund documentation, covering fees, structure and intended assets, with supporting documents required for alternative investment funds. Some firms provided insufficiently detailed or untailored documentation.

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