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- The Insurance Implications Of The FCA Asset Management Study
The Insurance Implications Of The FCA Asset Management Study
The recent Asset Management Market Study published by the Financial Conduct Authority (‘FCA’)1 has proposed certain remedies to increase investor protection, including:
- The strengthening of the duty on fund managers to act in the best interest of investors.
- The use of the Senior Managers and Certification Regime to bring individual focus and accountability.
- The introduction of a new Prescribed Responsibility to act in the best interests of investors including a consideration of value for money.
- Consultation on requiring fund managers to return any risk-free box profits to the fund and to disclose box management practices to investors.
- The introduction of technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds.
If these remedies are implemented we presume that non-compliance by asset managers could lead to a spectre of regulatory action by the FCA and claims by clients. If that transpires, asset managers will need their Professional Indemnity (PI) and Directors’ & Officers’ Liability (D&O) insurance to respond appropriately.
Well drafted D&O policies should provide coverage for a range of actions brought by regulators and coverage should be available for actions brought by the FCA for breaches of the proposed Prescribed Responsibility. We will continue to monitor how the FCA proposes to implement these remedies and any divergence or development to the proposals, and we will provide further commentary in due course, with a particular focus on any aspects of the proposals that impose a requirement to amend the provisions of PI and D&O policies.
In addition, we believe that there may be a desire for separate and dedicated Senior Managers insurance as a result of the FCA’s focus on the Senior Management Regime and the potential for D&O policy limits to be exhausted by individuals not falling under the regime.
The issue of returning risk-free box profits to the fund and the way in which fund managers profit from investors buying and selling their funds raises potential problems from an insurance point of view. Claims arising from such issues may be viewed by insurers as claims for the return of fees, which are typically excluded under PI policies (the relevant exclusion is often described as ‘Disgorgement’). Again we will monitor developments in this area – we have extensive experience of negotiating the scope of such exclusions and we have had success in agreeing critical exceptions to the exclusion.
Asset Managers form a key component of our client base and we take particular interest in key regulatory reports, such as the FCA’s Asset Management Market Study, to ensure we are able to provide proactive and clear advice in relation to policy coverage. Over the years we have developed several bespoke insurance products for the industry and we are conscious that the regulatory environment is constantly evolving. Ensure your policy remains fit for purpose in this challenging regulatory environment.
Speak to the Arthur J. Gallagher Financial Institutions team for further advice.
1Asset Management Market Study,Final Report, Market Study MS15/2.3. Published by the FCA on 28th June, 2017