1.Training and Governance
Governance Connect offers training for senior management and Fund Boards, in particular newly appointed Independent Non-Executive Directors (iNEDs). The training focuses on Fund and Product oversight, Governance, Conduct Risk and in general what type of management information is needed by senior committees responsible for oversight and value for money.
The objective is to equip those people with oversight and investor protection responsibilities with the necessary knowledge to carry out their duties effectively. What the FCA is more concerned about are the “outcomes” from various financial products and that fund boards and senior managers have a process in place that can oversee and identify potential areas of conduct risks or poor outcomes for customers before they become serious issues manifestoing as customer detriment.
This training is to focus participants on a good understanding of the issues around fund oversight and allow those representing underlying investors to have the necessary knowledge to “challenge” the delegated fund or asset manager and also various committees and fund boards.
Some background information on why the need for an investment focused governance framework can be found from the FCA’s Asset Management Market Study, please see www.governanceconnect.co.uk or please feel free to email email@example.com for further information.
2. Asset Manager Due Diligence Review
To equip those with the knowledge to understand the asset manager’s regulatory business, how it is run and to make an assessment on the product or service being delivered in a compliant way. In essence to make sure the right questions are being answered, documented and then tested. This is to give the client the rational to support the use of an asset manager, as opposed to signing off on just fund specifics, such as Performance or Low Fees. It is easy to buy performance, but harder to sell it.
An asset manager DD review focuses on an asset manager’s systems, controls, risk management (Risk Management Policy), operations, regulatory compliance and investment management process.
The objective is to give comfort to the client or fund board that the asset manager has the appropriate systems and controls in place, as per FCA regulations and that it can continue to deliver a compliant investment management service. This is a key oversight / protection role that underlying investors would expect from entities managing their money, advisers recommending products to them and oversight boards.
3. Fund Oversight
To work with committees or fund boards to make sure that there is a process in place for reviewing the right investment management information (MI) from various funds and products to be monitored and signed-off in terms of remaining on sale and value for money. This would include Terms of Reference, challenge and action logs.
Oversight committees and fund boards must make sure that they are reviewing on a regular basis the fund outcomes and how they have been derived at in terms of exposures and investment risks. As a result, fund boards and oversight committees can confidently execute their duties of investor protection, by proving an audited process.
What are the FCA rules around Governance, Oversight and Due Diligence?
There is nothing set in stone to achieve a governance process, the FCA just expects a firm to have one. What can help here is to have a good understanding of your business and potentially where risks might lie. Governance Connect's initial due diligence service considers three core risk areas of a wealth manager:
Fund and Asset Manager Due Diligence
Investment Management Oversight
Corporate Governance, Committees, Terms of Reference, Management Information (SYSC 2 & 7)
By having a review of those three core risk areas firms can avoid what the FCA DOES NOT want to see and that is a process that just follows a “tick box” exercise.
Where is the Substance and Challenge within a firm?
The FCA wants to see that there is some substance to a review process and will ask for evidence. The FCA has written extensively on what it wants to see firms do with regards to organising themselves, reporting on internal risks and investment management oversight, as per the Asset Management Market Study. The FCA has recently stressed, in a speech by the CEO Andrew Bailey (2019), that one of its main concerns, as a Conduct Regulator, is over Customer Outcomes. That is what it will look at first, has the firm delivered a Good Customer Outcome?
How Can Governance Connect Help YOU?
With regards to solutions for Governance and Conduct Risk Identification, there is no right or wrong approach, unless it results in a poor customer outcome, just so long as a firm can supply evidence as to why it undertook a course of action and implemented changes (or not). There are of course some core themes the FCA wants to see that a firm has focused on (can prove this), such as Treating Customers Fairly, MiFID II, Asset Management Market study, Product Governance and SM & CR.
From a Due Diligence review, Governance Connect works with clients in the wealth management industry. The approach is to first of all understand the client, their business and processes, before producing a report and making recommendations if required.
From the information and answers given to the due diligence review, Governance Connect supplies solutions and recommendations to help firms continue to be compliant and able to offer products and services that create good customer outcomes and offer Value for Money, within an audited Governance framework.
Main Review Conduct Risks
Governance Connect’s DNA is about working with firms, senior management and fund boards on their Oversight, Controls, Risk identification and investment Products. The solution to all that is to have a working Governance Framework to avoid creating poor customer outcomes from a lack of:
From the FCA’s Firm Systematic Framework (FSF), as part of its FCA supervision model, the first thing a firm must be able to prove is:
Governance – the risk is that a firm is organised in such a way as to fail to identify customer detriment (specific FCA conduct risk 1 – see complete list of Conduct Risks)
From carrying out a Firm Systematic Framework (FSF) review, the FCA will be looking in-depth across the business including governance arrangements, product policies and procedures, training and competence (systems and controls) and operational infrastructure.
The FCA, from its FSF has one main overriding question:
“Are the interests of customers and market integrity at the heart of how the firm is run?”