Our review of smaller asset managers and alternatives business models has found most firms are meeting regulatory expectations.
The review was part of our plans to focus on smaller firms to identify business models posing greater risks of harm to consumers as part of our 2022 Alternatives supervision strategy.
The review aims to help new market entrants, smaller firms and growing organisations benchmark sound risk management practices and better understand regulatory expectations. Its findings support customers investing confidently, by providing firms with examples of good practice and highlighting where some need to improve.
The findings focus on 3 areas:
- High-risk investments (HRIs).
- Conflicts of interest.
- The Consumer Duty.
The review covered 410 firms with assets under management (AuM) of less than £1 billion, collectively managing approximately £220 billion in assets.
High-risk investments (HRIs)
To make sure firms were complying with relevant marketing restrictions, we considered the importance of effective product governance and, where applicable to a firm's business model:
- Clear and compliant financial promotion materials.
- Processes for investor/client assessment and categorisation.
We found most firms offering HRIs were able to clearly categorise their products. However, some firms did not have sufficient processes in place to make sure HRIs are only sold to clients if they are appropriate.
Conflicts of interest
We found good conflicts of interest practices at some firms, but many others had ineffective conflict management arrangements. This included smaller firms where senior staff held more than 1 role that failed to recognise conflicts from their overlapping responsibilities to make sure that, where conflicts cannot be prevented, they are documented, reviewed and disclosed where required.
Consumer Duty
Most firms are making good progress to embed the Consumer Duty in their activities where it is relevant. But some smaller firms still need to understand how the Duty applies to their business model as they have not yet adjusted their processes.
We are working with those firms to make improvements and will continue to monitor their conduct on these topics.