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Due Diligence Matters – October 2023 Bulletin

The FCA and PRA propose new measures to boost D&I

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed new measures to boost diversity and inclusion (D&I) in the financial services sector, in one of their latest consultation papers published in September 2023 (CP23/20). The aim of the proposals is to increase diversity and inclusion in financial firms, resulting in higher quality internal governance, decision making and risk management, and contributing to improved outcomes for consumers and markets while promoting competition and financial stability. The proposed framework applies to all FCA or PRA regulated firms, although certain requirements are limited to firms with more than 250 employees.

The proposals follow the notable recent allegations involving Odey Asset Management, which resulted in the firm’s counterparties cutting ties with it, and, ultimately, its demise.  

Personal conduct and diversity and inclusion continue to become more important topics and focus areas for investors and allocators. If these proposals are adopted, non-financial misconduct would not only carry reputational risk but also regulatory risk, further underlining its importance when conducting due diligence. The risk of non-financial misconduct is considered by perfORM through background checks carried out on relevant individuals and firms as part of our due diligence process.

One of the notable proposals set out in the consultation includes improving the integration of non-financial misconduct considerations into the FCA’s Conduct Rules, and the staff fitness and propriety (FIT) assessments for staff performing a Senior Management Function or certification function.

This could see UK-regulated firms facing stricter rules when dealing with employees guilty of non-financial misconduct and to curb workplace bullying and sexual harassment, resulting in a healthier work environment which is also vital in attracting and retaining the best talent. The proposed rules and guidance aim to ensure that firms are able to take appropriate actions against employees guilty of such non-financial misconduct.

 FCA Chief Executive, Nikhil Rathi said “We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry”.

Other diversity policy proposals include, for larger firms, implementing a D&I strategy, setting appropriate diversity targets, collecting and reporting certain D&I data, and recognising a lack of D&I as a non-financial risk requiring appropriate governance measures.

The consultation is open until 18 December 2023 and publication of the final rules is planned for 2024.

ODD Report Solution

Our ODD Report Solution is not just another tick in a box, it is a new approach to operational due diligence. A pragmatic solution for Investment Managers and Service Providers which engage us to complete an ODD review. In addition to the below, we currently have a growing number of clients in progress.

  • Investment Manager: Wincent Capital Management Limited – please contact here to request access to our September 2023 dated ODD Report
  • Investment Manager: Hivemind Capital Partners UK LLP – please contact here to request access to our September 2023 dated ODD Report
  • Service Provider: Cloudwall Capital, Inc – please contact here to request access to our August 2023 dated ODD Report
  • Investment Manager: Old Street Digital Limited – please contact here to request access to our April 2023 dated ODD Report
  • Virtual Asset Service Provider: Copper Technologies (Switzerland) AG – please contact here to request access to our March 2023 dated ODD Report
  • Investment Manager: Hyperion Decimus, LLC – please contact here to request access to our March 2023 dated ODD Report

perfORM Due Diligence Services is an award-winning, multijurisdictional UK (London), Switzerland (Geneva) and the USA (NYC) and standalone Operational Due Diligence solutions provider with 90+ years of collective ODD experience.

ODD Coverage

We have a large coverage of ODD Reports that can be accessed off the shelf without subscription – please contact us for more information.

Vendor ODD – a trend?

More and more Investment Managers are asking for our support with service provider / vendor due diligence. We will discuss the rationale and our solutionin our November bulletin.

Technology update

We are now able to provide clients, with higher volume needs, with a portal dashboard to monitor ODD workflows, plus data transfer functionality, as required. For example, a client may need their ODD report in an excel format to integrate into their own portfolio management systems eliminating the drawbacks of a standalone ODD report in pdf or Word.

Missed the last bulletin? Click here for the September 2023 edition.