GUERNSEY: GFSC Publish Thematic Review on Fund Managers and Fund Administrators

Friday November 17 2017

Guernsey Financial Services Commission (GFSC) have published a thematic review on fund managers and fund administrators.

During late 2016 the Financial Crime Supervision and Policy Division and the Investment Supervision and Policy Division conducted a thematic review of fund managers’ and fund administrators’ governance, risk, and compliance frameworks. This topic was chosen because a key theme to emerge from supervision has been a weakness in the application of effective compliance monitoring arrangements. This review covered 34 investment licensees, predominantly rated low impact, under the Commission’s supervisory framework PRISM. These firms manage/administer approximately £44.2 billion in funds representing 24,000 investor relationships.

The review has culminated in the production of a report from each Division. The report comprises those matters specific to investment regulation.

The subject matters considered were:

• Licensees’ monitoring of collective investment schemes by way of key performance indicators and overall financial performance, for example net income;
• Licensees’ assurance on valuations of collective investment schemes’ assets; and
• Licensees’ management and disclosure of conflicts of interest.

The Commission found a good governance, risk and compliance culture amongst the licensees sampled.

Notwithstanding the above, the following areas for improvement were identified:

Board Oversight of Compliance

• Not all Boards had subjected their compliance monitoring programmes to timely review to ensure continuing relevance to the licensee’s current business.
• Some Boards had not reviewed the scope and content of the compliance reports. Boards should ensure they obtain sufficient information in order to satisfy themselves that effective systems and controls have been implemented.

Collective Investment Schemes – take-on and review

• One Board of a licensee was unable to articulate its risk appetite for the take on of new Schemes;
• Although the majority of licensees monitor financial performance and key risk indicators, a few do not; and
• Some fund administrators were not seeking to independently validate prices supplied by the fund manager. Whilst validation, to the extent of 100 per cent assurance, can be difficult to achieve a failure to seek any form of validation would likely lead a fund administrator to fail to meet Schedule 4 to the POI Law, the Minimum Criteria for Licensing.

Collective Investment Schemes – Conflicts of Interest

• All licensees had a conflicts of interest policy in place;
• However there was inadequate consideration of conflicts of interest in some cases where the fund administrator provided directors to sit on the Board of the Scheme.

This report reflects the findings from the thematic review of predominantly low impact firms.

Please click on the above link for more information.