The FCA has yet to consult on the extension of the Senior Managers
and Certification Regime. It is now anticipated to arrive in the “summer”.
However, in its Asset Management Market Study: Final Report, it signalled its intention to impose a prescribed responsibility under the SMCR to ensure asset managers comply with their existing obligations under its rules on collective investment schemes to act in the best interests of investors.
This responsibility, which will fall on the chair of the manager’s board, will include a duty to assess value for money in accordance with the standards set out in the proposed amendments to the FCA rules.
This will require consideration of economies of scale, charges and other payments, the quality of services and the different share classes available to investors.
Although asset managers will need to address the immediate impact of the value for money duty, the final report suggests the FCA may extend the duty to other types of firm.
A senior manager responsibility
When the SMCR was launched, the Prudential Regulation Authority and FCA set out over 30 different prescribed responsibilities covering areas such as culture, financial crime and training. These responsibilities have to be mapped to individual senior managers depending on their specific role, which helps to form a statement of responsibility.
The FCA will expect an authorised fund manager to allocate this prescribed responsibility to the chair of the AFM board, who will be a senior manager under the SMCR.
The chair of the AFM board would be individually responsible for taking “reasonable steps” to ensure the AFM and its board adheres to the proposed value for money rules.
The FCA takes the view this would provide an individual incentive for the chair to ensure the firm properly discharges its responsibilities to consider the interests of investors.
The FCA also highlights a new chair would require its approval before taking up their role, which would allow the regulator to assess whether or not the individual is fit and proper for the important roles.
The value for money rule
The FCA will expect AFMs to undertake an annual value for money assessment of their products and services.
A failure to take sufficient steps to address any instance where the assessment has identified poor value for money will be prima facie proof of a breach of the duty to act in the best interests of investors.
The FCA is proposing value for money rules setting out the following factors an AFM must consider when undertaking the assessment:
- Economies of scale achieved when funds reach certain levels of assets under management
- The reasonableness of charges and other payments in relation to the costs incurred
- The quality of services investors are, or have been, receiving
- The different classes of units available to investors and whether these offer value for money.
The regulator’s draft guidance on the value for money rules require an AFM to consider the charges for comparable products, objectives and policies of each fund, the appropriateness of fees paid to delegates and comparable market rates for services the AFM provides.
The impact on other firms
Despite the consultation paper for the extension of the SMCR not being released yet, firms should begin to start their planning and awareness of the regime as it is still expected to come into operation for all in 2018.
The fact the FCA is beginning to clarify sector specific requirements is likely to mean a read across to other areas from a value for money perspective, such as platforms and discretionary management services.
Clearly the regulator has a head of steam, given the recent announcement of a market survey into platforms around competition and conflict of interests.
It promises to be a busy summer and autumn considering firms also have Mifid II and the General Data Protection Regulation to be grappling with at the same time.
Simon Collins is managing director at Eversheds Sutherland Consulting