Asset managers in the U.K. must ensure that the distribution of their investment funds is appropriate, that the funds deliver what’s promised to investors in their packaging, and that their governance is effective, regulators say.
The U.K.’s Financial Conduct Authority (FCA) published a new report today, examining asset managers. The report found firms that are using insufficient product descriptions, as well as funds with inadequate governance and oversight. The FCA review looked at whether funds operated in line with investors’ expectations, as described in the funds’ marketing material and disclosure. It also looked at how firms monitored the distribution of their funds.
Among other issues, the review found that some firms do not monitor fund distribution adequately. For example, it found some funds available on execution-only platforms that were intended to be sold only with advice. It also found that some funds were not clear enough about how they were managed. For example, some funds failed to disclose an investment strategy, and one included jargon that, the FCA says, ordinary investors would be unlikely to understand.
The regulator called on asset managers to ensure that their funds’ descriptions are clear and correct, because investors and financial advisors rely on this information when making investment decisions. The FCA also stressed that firms must provide effective governance and oversight throughout the life of a fund, including funds that are no longer actively marketed. The FCA also says that firms must monitor their funds’ distribution channels to watch for inappropriate sales.
“All fund management firms should consider the findings in this paper and review their arrangements accordingly. Distributors should consider their responsibilities in light of our findings,” the FCA report says.
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