Compliance Digest - 26th April 2024
Dear CEO letter Asset Management firms
Extending SDR regime to Portfolio Management
Finalised non‑handbook guidance on the Anti‑Greenwashing Rule
Time to review your T&C Scheme?
PRA and private equity
Dear CEO letter to Asset Management firms
On 1st March 2024, the FCA sent an interim Dear CEO letter to asset managers with details of its supervisory strategy. The update reflects changes in the external risk environment, work that completed since the Dear CEO letters of August 2022 and February 2023 and provides the FCA’s forward areas of focus for this sector over the next year.
The headings within the letter are
Setting and testing higher standards, this will link to an assessment of value in the sector and, unsurprisingly, the Consumer Duty.
Reducing and preventing serious harm.
Supporting innovation
Promoting competition and positive change
Whilst aimed at the Wholesale Buy-Side sector, the themes apply across the regulated sector. It may be wise to review the letter and assess how the themes apply to your firm.
Extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management
Finalised non‑handbook guidance on the Anti‑Greenwashing Rule
The FCA is taking sustainability disclosure and greenwashing seriously. The consultation paper and the finalised guidance a closely linked.
The FCA wants to help consumers to navigate the sustainable investment market by extending the SDR and labelling package to portfolio management services. This would mean applying the labelling regime, naming, and marketing rules, and disclosure requirements to portfolio managers. This package of measures should help to ensure that portfolio management offerings that claim to be sustainable investments meet high standards and enhance trust in the market.
Tackling greenwashing is a priority for the Regulator. It wants to protect consumers against greenwashing so they can make informed decisions that are aligned with their sustainability preferences. But the FCA also wants to create a level playing field for firms in an evolving market, whose products and services genuinely represent a more sustainable choice and who are making genuine claims about their products and services sustainability characteristics. If stakeholders trust the sustainability‑related claims firms are making about their products and services, this may increase confidence in markets and the flow of capital into these products.
The Guidance is compatible with the FCA’s strategic objective to make markets function well by increasing transparency on the sustainability features of products and services and reducing the risk of harm arising from greenwashing.
Time to review you Training & Competence Scheme?
In the heavy lifting that was preparing for Consumer Duty did the changes you implemented have an impact on your firm’s T&C Scheme? Have you revisited your T&C Scheme since the introduction of SMCR and have you redefined your firm’s KPIs as a result of Consumer Duty.
There is a school of thought that T&C Schemes should be reviewed every three years. You might think that this is too frequent, but, when was the last time you carried a root and branch review to ensure that your KPIs and the requirements of the scheme matched the FCA’s expectations and the requirements within the TC Sourcebook.
If you want a third-party review of your scheme, please contact me via ian@compliancematters.co.uk.
PRA and Private Equity
The Bank of England has highlighted how higher interest debt, and a lack of exit opportunities pose a problem for private equity (PE) investors that could spill over into the wider economy.
In a speech given at Bloomberg, Nathanaël Benjamin, executive director for financial stability strategy and risk at the Bank, warned that ‘the opacity, complexity and interconnectedness’ of PE investing means regulators need to monitor the market. He cautioned that problems within the sector could spill over into the wider economy, either by hitting the stability of the financial system or by preventing companies from accessing funding.
Benjamin noted ‘Shining a light on the current dynamics in the private equity market is crucial at this juncture given the important role the sector plays for the real economy,’.
In another speech, given at UK Finance, Rebecca Jackson, Executive Director, Authorisations, Regulatory Technology and International Supervision at the Bank noted ‘The private equity market has grown considerably over the past decade, and with it, Banks’ exposures to the sector have also grown considerably. The PRA recently concluded a thematic review of firms’ private equity financing risk management frameworks.’ Jackson set out the review’s findings and highlighted a number of gaps in firms’ risk management frameworks.
The finding that Rebecca Jackson focused on is that only a very small number of banks can consistently aggregate data in a manner that is appropriate to their exposures to the private equity sector. There were gaps, and often significant gaps, identified in most of the frameworks that the PRA assessed. Nevertheless, there is a great deal of variation across firms, with some demonstrating significantly more developed practices and having clear remediation plans for gaps, while at the other extreme, some firms had almost no ability to aggregate data or even appreciate its crucial importance. Given how the private equity market has developed over the past decade, this is not terribly surprising – though it is disappointing.
As the advisory sector consolidates with funding from Private Equity, the PRA and the FCA will be keeping a close eye on developments in this sector.
Feel free to share this blog with your colleagues and contact me for further information.
Ian Ashleigh
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