Financial Services Compliance Blog - Thistle Initiatives

FCA review of liquidity management in asset managers

Written by Thistle Initiatives - Compliance consultancy | Jul 11, 2023 2:37:41 PM

What has happened?

In July 2023, the FCA reported on its recent multi-firm review of liquidity management in fourteen Authorised Fund Managers and identified that firms in this sector need to increase their focus on liquidity risk. This was emphasised in a Dear CEO letter issued at the same time.

What are the key points of the review?

The FCA’s review highlighted the following key points.

The building blocks and tools for effective liquidity management are usually in place at firms, but these lack coherence when viewed as a full process and are not always embedded into daily activities. 

Many firms attach insufficient weight to liquidity risk management in their governance oversight arrangements, as well as providing insufficient challenge and escalation, particularly in volatile environments. 

A wide range of approaches to liquidity stress testing were noted, with some methodologies insufficient to assess actual liquidity of the portfolio, using assumptions that were not appropriately conservative.

Firms typically have governance and organisational arrangements in place to meet large one-off redemptions but wide variations were observed in the application of anti-dilution tools such as swing pricing, which could affect the price investors receive when redeeming.

The FCA expects asset managers to take account of the findings, as many of the examples of good practice highlighted in the review and letter contribute to improved consumer outcomes and are consistent with the Consumer Duty.

Although this review focuses on AFMs, the FCA expects all asset managers and also the managers of Alternative Investment Funds to consider the findings for their businesses.

How can we help you?

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with the regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your fund liquidity arrangements, the Consumer Duty Regulation or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 0207 436 0630 or send an email to info@thistleinitiatives.co.uk.