The word 'expect' or 'expectation' surfaces 17 times in a letter that the UK's Financial Conduct Authority sent to asset managers recently.

The FCA has laid out its priorities for the asset management market in a 'Dear CEO' letter. Mentioning no rules at all, the FCA baldly states that it 'expects' firms to adopt these priorities as their own.

The regulator begins by castigating the sector for not acting in the interest of its customers to an adequate degree. Standards of governance, it says, are generally falling below its expectations. It issues an extraordinary call for investment in more IT among firms when it says: "Funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest. Inadequate investment in technology...has led to deficient systems."

Incidentally, according to Devin McCune of Broadridge, the FCA's idea of 'fund value' is based on "the US 15(c) requirements" - presumably a reference to section 15(c) Investment Company Act 1940. It is a combined measurement of seven things: range and quality of service; performance net of charges; cost of providing services; comparable rates for other products; comparable market rates; class expense differences; and economies of scale. The responsibility for measuring value falls on both executive directors and independent non-executive directors or i-Neds, who are bound to approach the issue from two different angles and therefore take part in healthy arguments.

Liquidity management

Another expectation rears its head when the FCA reviews the steps it has taken to improve liquidity management. It is the duty of fund managers to manage liquidity effectively and the regulator is worried about open-ended funds encountering mismatches between the terms at which investors can redeem their securities and the time needed to liquidate assets.

The FCA and the Bank of England issued some publications on the subject in the latter part of last year and now the FCA 'expects' firms to act on them, even though it mentions no actual rule. The publications are a policy statement from 30 September, a letter to the boards of AFMs on 4 November and the initial findings of the two regulators' review of liquidity-related risks in open-ended investment funds from 16 December.

Governance

The 'systems and controls' part of the FCA's rulebook deals with conflicts of interest (SYSC) and, drawing on this, the regulator clearly states that it expects firms to spot and nullify any conflicts of interest between their affiliates, most notably between alternative fund management (AFM) entities and any delegate investment management entities.