The FCA has published a speech given by William Amos (Director of Wholesale Banking and Investment Management, FCA) entitled Getting the right investor outcomes.
At the beginning of his speech Mr Amos explains that in relation to right outcomes he does not just mean in terms of profit. The right outcome for a client will be:
- keeping costs reasonable;
- the right outcome will be within their risk tolerance;
- the right outcome will remain consistent with the original investment objectives; and
- the right outcome will be when an investment manager treats a client fairly. The chief executive officer of a large investment bank has described this as, “treat customers as if they were a member of your own family.”
Mr Amos then provides two high level examples of where the FCA has worked with firms to meet expectations.
Mr Amos then discusses what is meant by outcomes focused stating that in his view an important part of achieving the right outcomes is having the right culture. This means a culture which needs to be embedded throughout the business, thinks about the consumer and market integrity, and is used to drive long term growth.
Mr Amos states that the FCA wants a firm’s culture to be based on a concept of “should we do this?” with the business challenging itself on how it operates. If putting the client first is one of the firm’s core values, then the question is how is this being implemented? The FCA expects to see firms ask themselves at all points in the product cycle:
- should we be doing this?
- specifically, does this fit with the values or culture of the company?
- is it in the interests of the client and will it enhance the reputation or integrity of the market?
- will it threaten the reputation or integrity of the market?
Mr Amos adds that these are not questions that compliance should answer nor is it what the FCA Handbook is for. It is for those in the business.
Mr Amos then discusses the wholesale industry stating that the FCA focuses on two specific types of behaviours being those that impact on:
- the integrity of the market; and
- those who use the market (i.e. the investors).
He adds that in many ways the FCA’s work on integrity corresponds to the reputation of the market and that this means that the FCA cares even where there are no losses to other market uses or losses that flow through to retail customers. However, the FCA is obviously concerned about how behaviour in the wholesale sector impacts on retail markets and it does not draw a hard line between retail and wholesale on the basis that wholesale markets and behaviours can impact retail markets. Mr Amos then discusses some recent FCA work including how asset managers spend their clients’ money and the communication of fund charges.
Fund authorisation process
In the final part of his speech Mr Amos covers recent changes the FCA has made to the fund authorisation process and the setting up of an enhanced fund supervision approach. Mr Amos explains that the FCA has established a new centre of excellence for investment funds which will oversee the cradle-to-gave lifecycle of UK investment funds. The new FCA Fund Authorisation and Supervision Team are responsible for regulated funds from their point of entry into the UK market at the authorisation stage, monitoring and supervision all the way through to the fund’s termination or closure.
Mr Amos states that the authorisation stage is the gateway for collective investment schemes that want to be promoted to UK investors and as such investors’ expectations must be aligned with the fund’s own stated investment objectives. Fund structures must be clearly set out so that the investor can understand how they are to operate, what the investment strategy is and what are the risks involved. Investors must be able to clearly understand the charges associated with their investment.
In the post authorisation phase of the life of an investment fund, Mr Amos states that what matters is the delivery of the stated investment objectives and how the operators and managers of the funds go about doing this. Managers of funds and those with responsibility in the Authorised Corporate Director or depositary or trustee should be constantly checking to see:
- is the fund compliant with the investment mandate;
- is there appropriate transparency and disclosure to investors;
- are the investors’ interests being best served throughout the fund life-cycle; and
- are all the decisions being made manage any conflict of interest and producing the best possible outcomes for investors.
Mr Amos states that if all of the above is being done then FCA fund supervision will not have any material impact.
Finally, Mr Amos adds that the FCA fund supervision team will also focus on potential high-risk areas. One current area of interest is valuation and liquidity management. The FCA is using property funds as case studies to explore how firms deal with assets that can be difficult to value and where fund liquidity needs to be carefully monitored and managed.
View Getting the right investor outcomes, 24 September 2014