FCA’s Review of Smaller Asset Managers: Key Findings and Next Steps
On 8th May 2025, the FCA published its findings from a review of the business models of smaller asset managers and alternatives; specifically, those managing less than £1 billion in assets, covering approximately 1,000 firms.
The publication is intended to assist new entrants and smaller firms “benchmark sound risk management practices and better understand regulatory expectations” and makes good on the promise made in the Dear CEO: Alternatives Supervisory Strategy letter from August 2022.
Key Findings:
1. High-Risk Investments (HRIs)
Most firms could correctly categorise their products as restricted mass market investments (RMMIs) or non-mass market investments (NMMIs) (which includes, inter alia, unauthorised aifs).
However, some firms lacked robust processes to ensure HRIs were sold only to the permissible client categories, noting that NMMIs cannot be mass marketed to retail investors. Weaknesses identified here included:
- Insufficient appropriateness and suitability assessments, especially for non-advised retail investors.
- Poorly designed or unclear financial promotions, risk warnings, and incomplete cost disclosures.
- Inadequate investor/client categorisation and assessment processes, risking non-compliance with marketing restrictions.
2. Conflicts of Interest
- While some firms had effective conflict management, many others—especially where senior staff held multiple roles—failed to identify, document, or disclose this fact and document the conflict (or risk thereof) adequately. A governance structure featuring ‘multi-hatted’ individuals is a very common feature in small firms and the finding is a noteworthy and important reminder of the need to implement a suitably robust control environment to mitigate perceived risk here.
- Conflicts registers were often incomplete or not regularly updated. Overlapping responsibilities at senior levels were a common source of unmanaged conflicts.
3. Consumer Duty
- Most firms showed progress in embedding the Consumer Duty, but some had not tailored their approach to their business model or could not evidence senior management oversight.
- Some firms struggled to produce meaningful board reports or demonstrate actionable management information (MI) related to Consumer Duty compliance.
Good Practices and Areas for Improvement
Proportionate, robust governance and tailored risk frameworks are vital for sustaining good outcomes and supporting confidence in alternative investments, so say the FCA. This remains so very true with small firms where artfully constructed control environments are key.
Firms should pay especial attention to the following areas:
- Strengthen investor assessment and categorisation processes for HRIs.
- Regularly review and update conflicts of interest frameworks, ensuring regular updates to documentation following compliance and board review, and appropriate use of disclosure. Where firms have multi-hatted individuals, ensure policies and procedures reflect this fact; including an up to date conflict register (for example) that is replete with records noting the fact and mitigants thereto.
- Fully embed Consumer Duty principles (for firms with retail market business), with clear board oversight and actionable MI. Firms should refer to the FCA Consumer Duty Board Reports: good practice and areas for improvement publication (and be able to show review of such)
Regulatory Expectations and Next Steps
The FCA will continue to monitor firms and so a response (to these findings) is important. Indeed, as noted in the FCA’s Annual Work Programme for 2025-26 , the FCA intend to be increasingly transparent with its key priorities and expect a commensurately lively proactive response from firms.
Compliance teams and indeed governing bodies are expected to review the findings and initiate in the very least a cursory benchmarking review of the key areas noted, and observed good practices and areas for improvement.
If you should like to discuss the findings from the review and, most pertinently, steps to take in formulating a pragmatic and proportionate response please do get in touch. The Blueprint team would be delighted to help.