Mirabella’s Response to the FCA’s review of principal firms in the investment sector

May 22, 2019 by Joe Vittoria


In 2017, the FCA conducted a review of principal firms in the investment management sector. This was designed to look at how principal firms in the investment management sector understood and complied with their regulatory responsibilities in respect of their appointed representatives (ARs).  

This review enabled the FCA to enhance its knowledge of the industry and it then acted quickly and effectively to deal with the contraventions which it found.  This was a positive move for the industry, with any short-term concerns or negative perceptions allayed by the realisation that the FCA is cleaning up the industry for everyone, and competent providers have nothing to fear.   

Earlier this week, the FCA published the findings.  Although the review does not contain any surprises, its value is in its summary of the FCA concerns and of the infractions it found.  The accompanying Dear CEO letter acts as a useful guide for anyone wishing to operate in the hosting industry in the future and will likely form the basis for FCA reviews in the future.  

We welcome the focus on governance, which fits well into the FCA’s stated intention to focus on the culture of compliance in the financial services industry.  We would also encourage interested parties to directly review the FCA’s summary as some media reports have dramatized their findings and exaggerated the conclusions.  Some press reports would suggest that the FCA found all firms in this space are failing to maintain adequate standards.  This simply isn’t true, particularly at principal firms like Mirabella that have always valued quality and compliance.  

While there is no doubt that principal firms operating in this sector are solely responsible for their actions, we would highlight that ARs should better educate themselves about the industry and the FCA’s requirements in this space.  All too often a lack of guidance means that prospective ARs view hosting services as a commodity and so simply base their choice of provider on the cheapest price.  It is important for ARs to recognise that a failure in their Principal Firm can have repercussions on their activity.  This review and the observations made by the FCA will help ARs to evaluate their choice of Principal Firm based on attributes such as quality and regulatory compliance and not just price.  This will improve the industry overall.
  
The UK regulatory hosting industry attracts to London foreign firms which are looking to establish a regulated presence in Europe, by helping them to start under its oversight.  This will continue regardless of the UK’s relationship with the EU and is a service which is often envied by London’s competitors.  We believe that the FCA is aware of this and is not keen to lose this advantage. 
 
Mirabella participated in this process, as did most of the industry, by responding to information requests and hosting a visit by the FCA’s expert reviewers.  At Mirabella, we found the process useful, productive and informative, and in mid-2018 we welcomed the FCA’s follow-up observations and suggestions regarding our process and infrastructure.  Shortly thereafter, we accepted the FCA’s minor suggestions and implemented appropriate solutions, and this concluded the process.  

Although the FCA is not looking to shut down regulatory hosting, it is looking to ensure that ARs are operating under the same regulations and obligations as all other firms.  We look forward to continued dialogue with the FCA to improve our process and that of the overall industry.