Response to FCA Letters – Asset management

The FCA portfolio letter on Consumer Duty implementation provides guidance on the following:

• interaction with existing rules in COLL and PROD;
• the relationship with a retail customer;
• how the Duty impacts on the relationship between distributors and manufacturers; and
• examples of good and poor practice.

There is nothing particularly new in the letter which largely draws on previous guidance in the Policy Statement and Non-Handbook Guidance and the examples of good and poor practice are unhelpfully quite high level. However, we have flagged a few interesting points below:

Interaction with existing rules

• The FCA reiterates that the Duty as a whole is broader than existing rules in PROD so satisfying PROD is unlikely to meet all aspects of the Duty. In particular, firms must pay appropriate regard to the nature and scale of characteristics of vulnerability that exist in the target market. This is in-line with the advice we have been giving to clients that compliance with PROD/COLL alone is not sufficient and firms must still consider the cross-cutting rules and broader Duty.
• The FCA expects managers to consider their responsibilities under the Duty and to ensure they implement adequate processes and governance to ensure requirements are met. For example, fund managers must maintain an appropriate liquidity strategy for a fund. The FCA expects that under the Duty, firms consider customer outcomes for both exiting and remaining investors when identifying the mix of assets which may be employed to meet a redemption request.

Direct relationship with retail customers

The letter reminds firms that they may still be subject to the Duty even where they do not have a direct relationship with retail clients. It expects firms to be able to articulate if/how the Duty applies to their full range of services and to be able to evidence how they undertook that analysis.

Distributors

• The FCA notes that the industry has existing mechanisms for sharing information in standard formats and is not intending to impose any specific standards here.
• Firms that are distributors are required to consider remuneration as part of their assessment of whether distribution arrangements could result in a product ceasing to provide fair value.
• Where firms are already undertaking a COLL AoV, they should still consider the needs of third-party distributors and whether they need additional information to help them to understand the value of the funds.

Feedback on implementation plans

The letter generally reiterates the points made in its broader feedback for firms, in particular that firms should be focussing on the following key areas:

(i) effective prioritisation with a focus on reducing the risk of poor customer outcomes
(ii) embedding the substantive requirements
(iii) accelerating work with other firms in the distribution chain.

For the asset management sector in particular, the FCA states that it now needs to see firms developing the substance of their plans in order to progress towards implementation and embedding. Boards and management bodies are encouraged to focus and provide challenge on the three areas identified above in particular.

Next steps

• The FCA notes that they are considering whether they can provide further clarity on issues around scoping, such as the concept of material influence and their expectations where firms operate funds in the UK but have no UK consumers. They will work with industry associations to consider this further.
• The FCA will also shortly be sending a survey to firms without a designated supervisor to understand progress that such firms are making with their implementation projects.
• Finally, the FCA plans to conduct a review in 2024 to assess the embeddedness of the Duty, with a focus on the price and value outcome.