Investment managers give FCA qualified support

The annual FCA and Practitioner Panel Survey report published October 2024, provides detailed feedback on the FCA’s performance from regulated firms across the UK financial services industry. This summary focuses on the experiences of Investment Management and flexibly supervised firms, those who are “not allocated a named individual supervisor”. It summarises their observations on their relationship with the regulator, key areas of concern, and how they compare to the wider industry.

1. Satisfaction and Effectiveness

Investment Management firms expressed high levels of satisfaction with the FCA’s role in regulating the sector:

• Satisfaction: 82% of Investment Management firms rated their relationship with the FCA positively, higher than the overall figure of 74% across all sectors.
• Effectiveness: 79% of firms rated the FCA as effective in regulating the financial services industry, compared to 70% overall.

These ratings suggest that the FCA’s regulatory oversight is viewed positively by investment managers, despite broader concerns about the cost and burden of regulation.

2. Confidence in the FCA’s Strategic Objectives

While Investment Management firms have confidence in the FCA’s ability to deliver on its core objectives, there are signs that the FCA’s proactivity and supervisory quality are points of concern:

• Proactivity vs. Reactivity: The survey revealed an interesting split in how firms view the FCA’s approach to identifying risks. 31% of flexible firms overall believe the FCA tends to be reactive rather than proactive in addressing emerging risks. This perception suggests that firms feel the FCA could do more to anticipate risks rather than responding to them after the fact.
• Quality of Supervision: A drop in the perceived knowledge of FCA supervisors is also noteworthy. Among fixed firms, agreement that supervisors are knowledgeable about FCA rules fell from 87% in 2022-23 to 77% in 2023-24. While data specific to Investment Management firms isn’t broken out, the trend may suggest that firms feel supervisors need to be better equipped with the technical knowledge to provide consistent, reliable oversight.

Adding to this, six in ten fixed firms found that FCA information requests were difficult to collate, and half felt they weren’t given enough time to compile the requested data. Among flexible firms, a lower proportion (30%) found information difficult to collect, perhaps a reflection on systems and resources, Even then 29% were unsure whether the FCA even uses the information effectively! Clearly, there’s work to be done in streamlining the information requests and communicating their value.

3. Engagement with Stakeholders

Although Investment Management firms generally rated their relationship with the FCA higher than other sectors, the survey identified room for improvement in the FCA’s engagement practices.

• Engagement Effectiveness: While 88% of fixed firms believed the FCA’s engagement with stakeholders when developing new regulations was positive, some uncertainty remains. 12% of flexible firms were unsure if this engagement leads to more effective regulation, and 9% actively disagreed. These numbers may reflect scepticism that FCA consultation translates into practical benefits for the sector or addresses industry concerns.

4. Proportionality and Regulatory Burden

Proportionality remains a sticking point, even for Investment Management firms, which tend to be more positive about their relationship with the FCA.

• 55% of Investment Management firms agreed that the FCA acts proportionately in balancing the costs and benefits of regulation, which is higher than the overall figure of 42% across all sectors. However, this still leaves 45% of firms feeling that the regulatory burden is not aligned with the benefits. This sentiment is particularly interesting given that Investment Management firms will likely be supervised in the FCA’s flexible portfolio and have less regular engagement with the FCA. If almost half of them are concerned about regulatory proportionality, the FCA may need to re-examine how it communicates its expectation for flexibly supervised firms.

5. Appointed Representatives Oversight: “Who’s Watching Who?”

The FCA’s increasing supervisory focus on Appointed Representatives (AR) has been a top priority yet almost 30% of respondents said the level of oversight by their Principal had stayed the same.

Given the FCA’s emphasis on ensuring Principal firms properly supervise their ARs, this may raise a few eyebrows. After all, if oversight hasn’t increased in almost a third of firms, the FCA might want to take a closer look at what their Principal firms have been doing!

Conclusion

The 2024 FCA Practitioner Panel Survey paints a mostly positive picture of Investment Management firms the relationship with the regulator. Confidence in the FCA’s core objectives remains strong, but there are notable areas for improvement around proportionality, the reactive nature of the FCA, and the effectiveness of its supervision, particularly for flexible portfolio firms.

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