The FCA has released its findings from the most recent review of processes that Authorised Fund Managers (AFMs) use for assessments of value (AoVs) for the funds they operate.
This review is a continuation of the feedback provided from the FCA’s first review in July 2021 and was a supervisory activity highlighted in the Asset Management Portfolio Letter earlier this year.
Among the FCA’s key findings we note that:
- The FCA highlighted the importance of a thorough Gap Analysis, emphasizing the need for AFMs to identify and address any discrepancies between their current practices and the FCA’s expectations.
- The challenge of integrating AoV into daily operations has been underscored, suggesting that a seamless transition is vital for efficiency. Interestingly, the FCA observed that despite improved processes, the impact on assessment decisions remains limited. This raises questions about the effectiveness of current methodologies.
- The independent challenge mechanism, designed to provide an unbiased assessment, was noted to have limited effectiveness. This points to a potential area of improvement for AFMs. The FCA also delved into the quality of service assessments, emphasizing the importance of regular evaluations to ensure standards are met and exceeded.
- Performance metrics were another focal point, with the FCA stressing the need for clear benchmarks to measure fund performance. The FCA also touched upon the cost structures of AFMs and the potential for economies of scale, suggesting that there might be opportunities for operational efficiencies.
- Lastly, the FCA emphasized the importance of understanding and leveraging comparable market rates. It also highlighted the need for transparent reporting on comparable services, ensuring that AFMs remain competitive in the market.
Based on the FCA’s findings, here are some products and services that vendors could potentially offer to AFMs:
- Gap Analysis Tool: A software or digital platform that helps AFMs identify discrepancies between their current practices and the FCA’s expectations. This tool could provide actionable insights and a roadmap to bridge these gaps.
- AoV Integration Software: A platform that helps AFMs seamlessly integrate assessments of value (AoV) into their daily operations. This could include automation features, reminders, and reporting tools to ensure consistent value assessments.
- Quality of Service Audit: A third-party service that periodically evaluates the quality of services provided to the funds. This could involve surveys, feedback mechanisms, and performance metrics to ensure AFMs are meeting and exceeding standards.
- Benchmarking Service: A comprehensive study that compares an AFM’s fund performance, costs, and economies of scale against industry benchmarks. This would provide AFMs with a clear picture of where they stand in the market and areas of improvement.
- Training Workshops: Organize workshops or webinars that delve deep into the FCA’s findings, helping AFMs understand the practical implications and how to address them.
- Digital Reporting Tool: A software that assists AFMs in creating reports that align with the FCA’s expectations, especially in areas like assessing the quality of service, performance metrics, and using comparable market rates.
- Market Research Service: Given the emphasis on using comparable market rates and services, offer a service that continuously researches and updates AFMs on prevailing market rates and services, ensuring they remain competitive.
- Consultation on Process Improvements: A service that focuses on improving the overall processes of AFMs, especially in areas where the FCA found limited effectiveness, such as independent challenges and assessment decisions.
By offering one or a combination of these services, vendors can provide AFMs with valuable solutions to address the specific needs and challenges highlighted by the FCA in its publication.
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Disclaimer: This article provides general information only. It is not comprehensive and does not constitute the provision of legal, investment or regulatory advice. FSREG is not responsible for any action taken or omitted to be taken on the basis of the information contained in this article. © 2023 FS REG Limited (www.fsreg.com). All rights reserved.