The UK Financial Conduct Authority (FCA) has released the
findings of its latest review of smaller asset management and alternatives
firms. The review is part of a wider supervisory strategy launched in 2022. The
aim is to identify business models that may pose harm to consumers.
High-Risk CFD Sales Raise Concerns
Although the FCA did not name specific products, the
findings are relevant to firms offering leveraged derivatives such as contracts
for difference (CFDs). These products are considered high-risk. They are often
marketed to retail clients and are subject to strict rules.
While most firms had processes to identify high-risk
investments, some lacked the necessary procedures to ensure these products are
sold only to appropriate investors. This remains a key concern in the CFD
sector, where firms must classify clients correctly and provide clear risk
warnings.
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FCA Reviews Smaller Firms, Flags Governance Gaps
The review covered 410 firms, each managing less than £1
billion in assets, collectively overseeing £220 billion. The FCA focused on
three areas: high-risk investments, conflicts of interest, and compliance with
the Consumer Duty.
The FCA also found gaps in how some firms manage conflicts
of interest. This issue was more common in smaller firms, where senior staff
often held multiple roles. In many cases, this reduces oversight. CFD providers
with vertically integrated models may face particular challenges and may need
stronger governance.
Regarding the Consumer Duty, the FCA said most firms are
making progress. However, some smaller firms have not fully implemented the new
requirements. These rules demand that firms act in good faith, prevent
foreseeable harm, and support customers in reaching financial goals.
FCA Introduces PASS and AI Testing
The FCA is introducing new regulatory, aiming
to attract international firms and maintain the UK’s leadership in global
markets. At the Innovate Finance Global Summit 2025, Jessica Rusu outlined
reforms, including changes to the wholesale market structure and the
introduction of PASS (Pre-Application Support Service) for cryptoasset,
payments, and wholesale firms. The FCA also launched AI Live Testing to support
responsible AI use in consumer services.
This article was written by Tareq Sikder at www.financemagnates.com.
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