Most smaller asset management firms are meeting expectations but there remains room for improvement, a review by the Financial Conduct Authority has found.
The review, part of the regulator’s plans to focus on smaller firms that may pose greater risks of harm to consumers, covered 410 firms with assets under management of less than £1 billion.
The findings focussed on three key areas; high risk investments; conflicts of interest; and the Consumer Duty.
The FCA said it found most firms offering high-risk investments were able to clearly categorise their products. However, some firms did not have sufficient processes in place to make sure such investments are only sold to clients if they are appropriate.
Similarly, the findings showed good conflicts of interest practices at some firms but highlighted that many others have “ineffective conflict management arrangements.”
This included smaller firms where senior staff held more than one role that failed to recognise conflicts from their overlapping responsibilities to make sure that where conflicts cannot be prevented, they are documented, reviewed and disclosed when required.
Finally, the FCA said most firms are making good progress to embed the Consumer Duty in their activities where it is relevant, but some smaller firms still need to understand how the requirements apply to their business model as they have not yet adjusted their processes.
“We are working with those firms to make improvements and will continue to monitor their conduct on these topics,” the FCA said in a statement.
