Fortnightly News Blog – 13 July 2021

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FCA reviews AoV reports

The FCA’s long awaited announcement on Assessment of Value (AoV) reports finally came this week – and made for stark reading.

The watchdog’s review of 18 fund managers’ offerings – conducted between July 2020 and May 2021 – found that most had not met the FCA’s desired standards. The regulator said in a statement that it would review the firms again over the next 12 to 18 months and expected any shortcomings to have been addressed.

The FCA’s findings are also available to members through the Research Bank.

The threat of regulatory intervention is aimed at raising the standards of assessments and ensuring that independent directors have “sufficient understanding of relevant fund rules”. The range of failings was broad, with some firms having assessed value only at a fund level rather than by unit class, Investment Week reports.

The report was a “very uncomfortable read” for Holly Mackay, Boring Money CEO, as reported by Investment Week, yet some in the industry have suggested that the report had not accommodated a “genuine desire” from asset managers to get AoVs right.

Meanwhile, Portfolio Adviser editor Sebastian Cheek asked whether more prescriptive rules are the answer to the industry’s AoV woes, while Ignites Europe (subscription required) reported that asset managers should be ready to integrate ESG considerations into AoV reports.

FBC has conducted its own review of AoV reports, analysing the changes being made from year one to year two. Read it here.

Regulatory overdrive

It’s been a busy couple of months for the FCA. Its Consumer Duty proposals are the target of critique from BBC Money Box presenter Paul Lewis. Writing in Money Marketing, Lewis explores whether the new duty will truly place consumers first and help restore trust in the financial system.

MPs are also taking shots at the regulator. The All-Party Parliamentary Group on Personal Banking and Fairer Financial Services has launched a consultation on the regulator’s approach to consumer protection. Money Marketing also covered the story.

Is it possible to regulate diversity and inclusion? More importantly, should it be regulated? Another recently released FCA discussion paper explores this topic. Culture is a key focus of the regulator and it has made clear that it wants to improve diversity and inclusion (D&I) across the sector. The proposals suggest targets for representation and making senior leaders accountable for diversity within their firms as possible options to improve representation within financial services.

FT Adviser reports that the regulator may link executive pay to diversity targets, adding that the FCA sees disclosure data as imperative to monitoring progress. Portfolio Adviser’s coverage cites a City of London Corporation study, which found that 89% of financial firms’ senior roles are held by people form a higher socio-economic background.

On the continent, the European Securities and Markets Authority and the European Banking Authority published revised final joint guidelines on the assessment of the suitability of members of the management body and key function holders, including guidance on D&I. The regulators say that institutions should take measures to improve gender balances within management positions.

Will Goodhart, chief executive of CFA UK, says in Investment Week that sustainability and D&I are complementary, and ensuring that investment industry leaders understand the importance of equality is paramount.

Elsewhere, recruitment company Odgers Berndston’s Leadership Diversity Report outlines how companies with a good track record in diversity use targets and make efforts to counter unconscious bias when recruiting.

And finally: Ireland’s staffing struggles

Ireland-domiciled fund management companies are struggling to recruit senior staff, according to Ignites Europe (subscription required). They have been scrambling to boost their numbers after a critical review from the Central Bank of Ireland last year.

A spike in new manco registrations in preparation for Brexit has exacerbated the problem, according to experts interviewed for the article. The central bank said it expected fund management companies “to continue to evaluate their structures to ensure these arrangements remain at the appropriate levels as their business develops”.

Research Bank Update

Amid the flurry of FCA reports and papers published in recent weeks was a review of host AFMs and how they manage conflicts of interest. This is available to members via FBC’s Research Bank.

Separately, with culture and conduct top of the regulatory agenda, the Investment Association has taken a look at the future world of work. Nobody yet knows exactly what this will look like, and with the COVID-19 pandemic far from over, it’s likely to take some time to become stable.