By Pritpal Virdee

On 10 August 2023, the FCA published its findings of its multi-firm review of the processes that authorised fund managers (AFMs) use to carry out assessments of value (AoVs) for the funds they operate.

The review comes after the FCA published its initial review of firms’ AOV processes in July 2021 where the FCA concluded “Most of the AFMs we reviewed had not implemented AoV arrangements we expect to be necessary to comply with our rules”.

This second review was carried out to identify the extent to which firms had implemented the COLL rules on AoVs and how they had responded to the FCA’s July 2021 findings. The FCA noted “significant” improvements whilst also identifying areas where improvements still need to be made.

Notable FCA conclusions as stated in its press release include:

  • Examples of good practice include moving investors to clean share classes with no trail commission or cutting funds’ fees.
  • Some firms' independent non-executive directors did not provide sufficient challenge, with some accepting information provided to Boards at face value without probing further.
  • Significant differences between good and poor practice in how AFMs assess their funds’ performance.
  • Firms putting too much emphasis on comparable market rates to justify their fees, rather than conducting an assessment using the full range of value assessment considerations.
  • Some firms now have better processes for allocating costs but are reaching conclusions on AFM Costs and Economies of Scale that don’t take into account the information made available by that better process.

The FCA acknowledges that the Consumer Duty did not apply at the time of its review. While the AoV rules and guidance act in place of the price and value outcome rules of the Consumer Duty, the FCA notes that the Consumer Duty is broader than just the price and value outcome and that firms should therefore consider how they meet all other aspects of the Consumer Duty.

The FCA encourages firms to consider its findings and to assess the quality of their own analysis for compliance in light of this. The FCA says that “Where we see outliers, we will follow up and take necessary action to ensure AoVs are conducted in line with our rules and expectations.”

For further UK financial services regulatory updates, please visit the Burges Salmon blog.