Britain’s financial markets regulator said on Tuesday it had “significant concerns” about governance and risk management at firms offering regulatory hosting services to fund managers.
Such services encompass companies – or “principals” – regulated by the Financial Conduct Authority allowing smaller firms to use that same authorisation and other operational infrastructure for a fee.
The underlying firms, or “appointed representatives” (ARs), are supposed to adhere to the rules of the platform they join and be challenged if they fail to do so.
However, FCA Director of Wholesale Supervision Megan Butler said a review of the sector had found “weak or under-developed governance arrangements”, and “a lack of effective risk frameworks, internal controls and sufficient resources”.
Citing “inherent conflicts of interest” in the business model that must be managed, a May 20 “Dear CEO” letter to the principal companies said the activities of some ARs could risk harm to both consumers and the wider market.
Platforms now needed to identify and fix any shortcomings in their risk management processes and practice or face action, she said.
In response, Joe Vittoria, chief executive at hosting platform Mirabella, said he welcomed the focus on governance.
“This review and the observations made by the FCA will help ARs to evaluate their choice of Principal Firm based on attributes such as quality and regulatory compliance and not just price. This will improve the industry overall.”