fsInvest Newsletter - August's round up of asset management news
Bert Lance, advisor to President Jimmy Carter once said, ‘if it ain’t broke, don’t fix it’, but what if it is, in fact, broken?
We have seen both Woodford and Sigma Broking in the press again this month, with the FCA issuing fines for offences by both firms, which ultimately can harm consumers and the economy as a whole.
The Woodford Equity Income Fund’s suspension in 2019 garnered a huge number of headlines and ripples of unease in the industry, with Neil Woodford most recently being issued a personal fine of £5.9m, and the firm itself receiving a fine of £40m. This is another stark reminder to us all of the importance of robust liquidity oversight, heightened governance, and senior accountability in fund management.
Sigma Broking Limited was also issued with an FCA fine of just over £1 million due to inaccurate or incomplete transaction reporting dating between 2018 and 2023. The firm had failed to make the required remediations to its systems, with the added inability to identify errors and maintain effective governance oversight of its compliance function.
For asset management firms, these cases serve as a critical reminder that it is their fiduciary duty to maintain robust systems and controls and that lapses in these key areas can trigger stringent enforcement action from the regulator. The FCA spotlight is certainly on firm processes surrounding transaction reporting and controls, which was recently highlighted in Market Watch 82 just last month, and also in reviews of transaction governance at wholesale banks and algorithmic trading controls at principal trading firms (PTFs).
The FCA’s initial review of six wholesale banks found no widespread weaknesses, but noted that some banks had more robust processes than others, with varying approaches to reputational risk. The key point again leading back to the firms’ framework and the role of senior management in identifying and mitigating risks effectively. Although this review is not directly applicable to asset managers, we can take away the key observations in how we assess, document and mitigate against transaction risk.
The multi-firm review of algorithmic trading controls conducted by the FCA, reviewed 10 PTFs to assess compliance with MiFID RTS 6 self-assessment. The key findings showed PTFs had made improvements since 2018, with conformance testing of algorithms generally being adequate and pre and post trade controls being robust overall. Some weaknesses were identified with regards to formal policies, unclear ownership of key controls and poor compliance oversight. Furthermore, key policy documentation was not linked or referenced in some self-assessments. This review provides us with valuable insights into how we can make meaningful changes to ensure compliance and oversight of algorithmic trading functions, with working examples of good practice which is appropriate for the nature, scale and complexity of a firms trading activities.
As the FCA continues to keep us abreast with news of fines and issue useful and relevant guidance to support and guide us, I will be taking the opportunity to ensure I am kept fully informed to provide advice and ‘fixes’ should they be required!
Regards
Senior Manager
fscom
REGULATORY UPDATES
HM Treasury policy statement: The Appointed Representatives Regime
HM Treasury has published a policy statement confirming its intention to preserve the Appointed Representatives (AR) regime while introducing two key targeted reforms to address consumer risk. First, principal firms will need specific FCA permission, through a "regulatory gateway", to appoint ARs, ensuring they have the necessary expertise and controls to oversee them effectively. Second, the Financial Ombudsman Service (FOS) jurisdiction will be extended to investigate ARs directly when the principal firm cannot be held responsible for their actions, closing potential gaps in consumer redress. These changes, which benefit innovation and competition while reinforcing governance, will proceed to consultation and eventual legislation.
FCA secures convictions against an individual for £1.3m Ponzi scheme
The FCA has successfully prosecuted Daniel Pugh, found guilty of orchestrating a £1 million Ponzi scheme through his Imperial Investment Fund (IIF). Pugh targeted 238 investors via Facebook advertisements by promising implausible returns before being convicted of conspiracy to defraud at Southwark Crown Court. The regulator is now initiating confiscation proceedings to recover criminal proceeds. This case underscores how emerging digital channels like social media can be weaponised for fraud and highlights the importance of vigilance in marketing compliance and preventive oversight.
Climate reporting by asset managers, life insurers and FCA-regulated pension providers
In its latest multi-firm review of climate reporting, the FCA finds that its 2021 TCFD-aligned disclosure rules have spurred greater awareness of climate-related risks among firms, improved integration into decision-making, and enhanced transparency with clients. However, firms also face significant hurdles: data limitations, inconsistent methodologies, and the complexity of disclosures make them less accessible, especially at the product level, and can overwhelm retail investors. As a result, the FCA signals a shift toward simplifying sustainability reporting and aligning with international standards to maintain effectiveness without overburdening firms.
interesting read
Catharine Hex-Candy