FCA Criticises Fund Managers In Open Letter

In an open letter to fund managers, the Financial Conduct Authority (FCA) has criticised them for not delivering good value for money to investors due to conflicts of interest, liquidity issues with funds and a poor level of product assessment.

The letter goes on to say that the FCA will take “robust” action against fund managers who continue to not offer good value for money to investors.

The FCA states in their letter:

  • That “progress” is needed in order to provide greater protection to investors, in order for them to grow their finances.
  • That certain products being promoted by fund managers are not entirely in the best interests of the investor, due to the way in which they are designed, e.g. products which include funds which track an undisclosed index.
  • A conflict of interest can arise in instances where the management of an investment fund was being outsourced by the authorised fund manager.
  • That greater precautions with liquidity issues within funds should be taken. This comes off the back of the now much publicised closure of the Woodford Fund, where investors were still being recommended to invest in it by fund managers, such as Hargreaves Lansdown, up until its suspension in June 2019.
  • Finally, the letter reminds fund managers that governing organisations need to have at least one quarter of their members as independent directors, with no less than two members on that board.

The FCA expects fund managers to:

“…take any necessary or appropriate action following these communications. We will continue our oversight of UK authorised funds.”

2018 Rules for Fund Managers

At the start of 2018, new rules came into force for the investment sector through MIFID II which sought to provide greater value for money to investors and improved product assessments from their fund managers. In the FCA’s open letter, they highlight the introduction of the rules referring to them as a protective measure:

to ensure customer interests remain central throughout the product lifecycle“.

The FCA are set to undertake a review of the 2018 rules, to see if they have had the desired effect.

Negligence claims against fund managers

A fund manager owes a duty of care to each of their clients in contract and under common law but also a statutory duty under the Financial Services and Markets Act 2000 to perform their work with reasonable care and skill. If they fail to do this and/or fail to act in accordance with the guidelines set out in the Financial Services and Markets Act and the investor suffers a loss as a result, then they may be able to bring a claim for professional negligence and/or breach of statutory duty.

At Nelsons, this is something we can discuss with you if you believe your fund manager has acted in such a way as to cause you loss.

How Nelsons can helpNegligence claims fund managers

Daniel Brumpton is a Partner in our expert Dispute Resolution team, specialising in professional negligence claims.

If you have concerns about advice you have received to invest in a fund then please speak to Daniel or another member of our team in Derby, Leicester and Nottingham on 0800 024 1976 or contact us via our online form.

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