An important part of the FCA’s Asset Management Market Study are the proposals that seek to strengthen the requirements on senior managers of an authorised fund manager (AFM). Key among these proposals is an extension of the senior managers’ regime (SMR) to certain AFM board members.
Respondents to the FCA’s November 2016 interim report suggested that AFM boards can lack authority within the group structure to effectively challenge the commercial strategy set by more senior boards and executive committees. In response, the FCA has said that when it issues its much anticipated consultation on extending the SMR it will consult on the introduction of a new prescribed responsibility on the chair of the AFM board to act in the best interests of investors. The FCA considers that this course of action should increase the board’s effectiveness to influence decisions made within the group structure towards considering investors’ interests.
The FCA goes on to say that the chair of the AFM board will be responsible for taking ‘reasonable steps’ to ensure the AFM and its board adheres to the FCA’s rules. This would provide an individual incentive for the chair to ensure the AFM properly discharges its responsibilities to consider the interests of investors. As a senior manager, the chair will also require the FCA’s approval before taking up their role. This would allow the regulator to assess whether or not these individuals are fit and proper for these important roles.
The FCA states that it plans to issue the consultation on extending the SMR “later this year” and that such consultation will include the above proposals.
Whilst FCA regulated asset managers are clearly within scope of the FCA’s proposals to extend the SMR, it appears that some regulated financial services firms will be left out. In its consultation paper setting out the proposals for the Asset Management Market Study (CP17/18) the regulator said that it is required to extend the regime to “almost all financial services firms”. The legislation states that it will apply to all FSMA-authorised firms and therefore we assume that this reference is to financial services firms that are not authorised under FSMA – e.g. payment services firms, e-money firms, introducer appointed representatives, exempt entities, etc.