DFMs feel the heat of FCA oversight

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Twenty-five investment management firms were investigated by the FCA in 2016, a Freedom of Information Act request has revealed.

A further seven have been the subject of a so-called Section 166 notice up to July this year.

S166 reviews, also known as skilled person reviews, are conducted by the FCA when it is concerned about an aspect of a regulated firm’s business or wants to conduct further analysis.

The regulator normally appoints an expert third party to go into a firm to conduct the review, at the cost of the firm under investigation.

The data reveals that a high proportion of the firms the FCA has placed under this type of investigation have been investment management firms.

FCA data shows that, for the 2016/17 financial year, a total of 49 s166s were issued by the regulator, meaning that roughly half of these kinds of investigation were launched against firms with permissions to manage investments.

In Q1 2017/18, nine s166 reports were commissioned.

The 32 investigations covered in the FoI response are for firms with managing investment permissions, including discretionary fund managers.

All the firms with the permissions can offer discretionary management services but they may not all operate as DFMs.

The FCA explains: “There is a large number, and wide variety, of firms captured by the permissions and the number of reviews detailed below relates to this larger population of firms and isn’t solely related to the small subset of DFM firms that sits within the broader permissions.”

The s166 was the type of investigation the regulator launched earlier this year into international advice firm deVere over its pension transfer advice. The investigation came after deVere agreed to cease providing advice on pension transfers.

While banks have historically borne the brunt of the reports, it appears the FCA is looking to use its investigation for a wider set of firms.

For example, stockbroking firms underwent nine s166 investigations in 2016, compared with six for banks.