On 1 March 2024, the FCA published a portfolio letter which updates earlier portfolio letters issued in August 2022 and February 2023 covering the regulator’s alternatives supervisory strategy and asset management supervisory strategy respectively. The update reflects changes in the external risk environment and work that the FCA has completed since those letters, as well as providing its areas of focus for this sector over the next year.

The letter firstly outlines the issues faced by asset managers, such as heightened uncertainty and several market shocks in 2023, alongside the FCA’s strategy to address them. It then breaks down the FCA’s approach into setting and testing higher standards, reducing and preventing serious harm, supporting innovation, and promoting competition and positive change.

As regards setting and testing higher standards, the FCA states that it will continue to work on, and assess, the Consumer Duty. Accordingly, it will undertake a joint multi-firm review with the life insurance portfolio, to understand price and value across the value chain and what actions firms have taken under the Duty to improve outcomes. The letter also highlights that, in 2024, firms will implement the Sustainability Disclosure Requirements (SDR) and investment labels. The FCA highlights its commitment to establish firms’ preparedness by assessing how firms’ governance and resourcing of change programmes has considered and mitigated this risk (particularly firms’ preparedness for complying with Policy Statement 21/3) to ensure that potential harms to investors and markets are being appropriately addressed.

With regard to valuation practices for private assets, the FCA will also be conducting a multi-firm review examining valuation practices for private assets, including examining the personal accountabilities for valuation practices in firms, governance of valuation committees, the information reported to boards about valuations and the oversight by relevant boards of those practices.

Furthermore, in line with the FCA’s objective of reducing and preventing serious harm, the regulator says it will maintain its commitment to the ongoing System Wide Exploratory Scenario, alongside the Bank of England (BoE), to improve understanding of the behaviours of banks and non-bank financial institutions during stressed financial market conditions and how those behaviours might interact to amplify shocks.

To support innovation, the FCA states it will continue to support the Asset Management Taskforce to identify and harness potential innovative new technologies for the UK asset management industry. Similarly, to promote competition and positive change, the FCA has several regulatory enhancements planned over 2024. These include working to implement the Government’s Smarter Regulatory Framework with a focus on MiFID, AIFMD and UCITS.

Next steps

The FCA reminds boards that they are responsible for the governance and oversight in ensuring their firm meets its regulatory requirements and expectations set out in the letter. Firms should take all necessary actions to ensure that senior managers are accountable for delivering on this.