Asset Management

Bank of England

Productive finance investment - Productive Finance Working Group report and recommendations - 27 September 2021

The Bank of England (the Bank) has published a report by the Productive Finance Working Group (PFWG) which sets out recommendations and a roadmap for increasing productive finance investment. The report summarises practical solutions the PFWG has developed to remove existing barriers to investing in less liquid assets. It focuses mainly on barriers faced by UK workplace defined contribution (DC) pension schemes and aims to create an environment in which DC scheme members and other investors can benefit from appropriate long-term opportunities.

The report contains recommendations in four areas:

• Shifting the focus to long-term value: DC scheme trustees, trade bodies and consultants should consider how increasing investment in less liquid assets could generate greater long-term value for their members.
• Building scale in the DC market: the PFWG observes that the DC market has a high proportion of small schemes and that their lack of scale can make it challenging for them to invest in less liquid assets.
• A new approach to liquidity management: industry participants and trade bodies should develop guidance on good practice for liquidity management at a fund level in consultation with the FCA and the Bank.
• Widening access to less liquid assets: the FCA should consult on changing its rules for investment in illiquid assets through unit-linked funds and review the Long-Term Asset Fund (LTAF) distribution rules to facilitate wider distribution to appropriate retail clients.

The PFWG will meet in early 2022 to monitor progress in implementing these solutions and consider any further action.

Report: A Roadmap for Increasing Productive Finance Investment

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Financial Conduct Authority

Wealth management and stockbroking supervision strategy - FCA publishes portfolio letter - 30 September 2021

The FCA has published a portfolio letter on its wealth management and stockbroking supervision strategy. Among other things, firms are reminded of the need to foster a healthy culture to prevent harm to consumers and markets, and the FCA observes that the imposition of a new ‘Consumer Duty’ would require significant shift in culture and behaviour for many firms.

The FCA’s objectives for firms operating in this sector include ensuring that:

• firms are not facilitating investment scams, fraud or market abuse. Firms must ensure client portfolios are managed in line with individual client risk profiles and ensure overall suitability;
• in the event of failure, firms can wind down in an orderly manner with adequate controls to mitigate any potential loss of client assets. The FCA observes that Brexit and the COVID-19 pandemic have resulted in an increased number of firms with a weaker financial position and, therefore, more firm failures; and
• consumers are fully aware of the overall cost they pay for their investment. Firms should have clear systems and processes for collecting and aggregating all the data relevant to disclosures of both ex-ante and ex-post costs and charges.

Dear CEO Letter: Wealth Management and Stockbroking Supervision