Asset managers’ capital assessments are falling well short of the FCA’s expectations according to KPMG’s latest report
Asset managers’ capital assessments are falling well short of the FCA’s expectations according to KPMG’s latest report, Picking up the Pace.
Over the last four years every asset manager in our survey visited by the FCA with relation to its risk controls has been asked to hold extra capital. On average, the add-on has been a staggering 82 percent. For a mid-sized UK firm an 82 percent capital addition equates to circa £31m.
Some firms have seen their share prices fall and had to cancel dividends, or ask parent companies for a cash injection following an increased capital requirement. As the regulator continues to sharpen its focus on this area, FCA visits, and subsequent capital add-ons, are happening with increasing frequency.
David Yim, Asset Management Partner, KPMG UK, comments: “Firms need to work fast to bridge the gap between the capital levels considered adequate by the internal team and the FCA, otherwise they could find themselves with a sudden and drastic hit to available capital. Every pound held in capital is a pound that can’t be invested in growth, digital or implementing regulation.”
The 2017 report finds that the regulator is increasingly turning its attention to smaller firms who typically get assessed entirely on paperwork, without any face-to-face interviews. That leaves any smaller firms without robust and documented risk strategies exposed to a potential capital hit. Smaller firms are already disproportionally affected by the costs of regulations such as MIFID II, having to hold more capital will be a significant opportunity cost.
David Yim continues: “Since we began this survey in 2015 we have seen a continual improvement in risk management across the industry, however there is still a lot of work to be done. Given the potential damage to business, and in an increasingly tough regulatory and commercial environment, firms need realistic, defendable capital assessments, or else the regulator will soon do it for them.”
For media enquiries, please contact:
KPMG Press Office (Financial Services)
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff. The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 152 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.