In terms of delegation, the FCA reaffirmed that when an AFM delegates investment management to a third party, it must ensure that it can effectively monitor them and retain the necessary resources and expertise to do so.

Contrary to these requirements, the FCA found that certain AFMs lacked the appropriate resources to deal with overseeing a wide variety of investment strategies. This lack of resources included not enough appropriately skilled and experienced people.

The FCA also noted that AFMs often referred incorrectly to a third-party investment manager to whom they have delegated functions as their ‘client’.

Additionally, the review provided that a number of firms did not demonstrate adequate oversight of delegated third-party investment managers, including how they plan to produce returns, and how they performed in different risk environments against fund objectives, benchmarks and peers.

The FCA also outlined that as a minimum, they expect firms to be conducting the following performance and risk oversight:

In the review the FCA flagged that the rules require an AFM to have robust governance arrangements in place, including:

However, once again contrary to the requirements, the FCA review found that some AFMs were consistently unable to provide evidence of robust governance procedures.

When evaluating the contributions from non-executive directors, the FCA saw a wide difference in the quality of contribution from the independent non-executive directors (INEDS). They also saw evidence that risk and conflicts of interest registers were static, standalone documents with very little to no board discussions about them.

Although the FCA expects AFMs to take meaningful steps to avoid or prevent, manage and monitor all conflicts of interest, several host AFMs in the review were unable to show sufficient evidence that they had identified relevant conflicts of interest despite some appearing obvious.

Issues surrounding the FCA Assessment of Value were also flagged during the review, which included: