Funds and asset management regulatory news, September 2020 # 4

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Our latest Funds and asset management regulatory news supplements our General regulatory news with items specific to the funds and asset management industry. Read both to keep abreast of recent regulatory developments.

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  • Culture, purpose and governance in asset management sector: FCA speech

Culture, purpose and governance in asset management sector: FCA speech

The FCA has published a speech by Marc Teasdale, Director of Wholesale Supervision, on the drivers of culture and the role of purpose and governance in the asset management sector.

Mr Teasdale touches on what the FCA means by culture and then moves on to explain that the FCA sees corporate purpose as a fundamental driver of culture. The FCA sees a firm's purpose as being a combination of its economic function and how it makes money, and the way in which it thinks about the social or economic contribution it provides. This does not necessarily mean demonstrating a broad social purpose (e.g. climate change), as the FCA recognises the social value inherent within a business providing financial services and products well, with a strong sense of the need to demonstrate positive outcomes for the customers it serves and the markets it operates in.

Mr Teasdale emphasises that "it is essential that purpose is not just a slogan on a brochure, or above the head-office reception, but can be seen manifestly in the choices that a firm and its employees make day in, day out, at all levels".

He discusses what the FCA's view of purpose is in the asset management industry, pointing out that the FCA hopes that firms will see value assessments as an exercise in purpose, rather than simply regulatory compliance. The value assessment is a firm's opportunity to explain clearly to its staff and its customers what value its basic business proposition provides, and then to put rigour into assessing the extent to which it actually delivers that value. Where there is mismatch, the FCA expects firms to take action to improve the proposition they offer to their customers.

Mr Teasdale also explains the link between purpose and governance, in the broader sense including processes, systems and controls. He referred to the January 2020 “Dear CEO” letter sent to asset management firms in explaining good governance and emphasised how important it is in asset management group structures, where there are often inherent conflicts of interest.

Mr Teasdale ends by emphasising the importance of diversity and inclusion for both strong governance and meaningful purpose. Firms are asked how far diversity and inclusion has progressed from a discussion about staff to a discussion about customers, and how far purpose is viewed in this way: "If the basic purpose of the asset management industry is to act in the best interest of investors, that must mean all investors, irrespective of their gender, ethnicity or other characteristics."

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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