Fund management firms that failed to “effectively manage risks that could lead to poor customer outcomes” will be “required to make improvements to their practices”, the regulator said after a review.

The FCA said it is already requiring firms to address the most significant issues.

Officials found that the 19 asset managers which were scrutinised were generally taking the right steps to ensure they manage funds as they say they will.

But while most funds in the sample were investing in line with their stated strategy, the FCA said it did find examples of “unclear product descriptions and inadequate governance or oversight”.

Some funds were “not providing a clear enough explanation of how they were managed” and some “failed to disclose a constrained investment strategy”.

The FCA cited one, which included jargon that it said ordinary investors would be unlikely to understand.

Megan Butler, FCA director of supervision - investment, wholesale and specialists, said: “In most circumstances they are clear about how they are going to invest and have the correct level of oversight to ensure practice follows promise.

“However, the industry needs to consider how it communicates when funds are linked to financial benchmarks.

“It is also vital that funds keep investment practices under review so they match their stated aims and strategy, irrespective of whether the fund is still actively marketed, because investors base their decisions on this information.”

The FCA’s review considered whether UK authorised investment funds and segregated mandates operated in line with investors’ expectations as set by marketing and disclosure material, and investment mandates. This was assessed against FCA rules and did not focus on fund performance.

The review also considered how firms monitored the appropriate distribution of their funds. The review covered 19 UK fund management firms responsible for 23 UK authorised funds and four segregated mandates.

All fund management firms should consider the findings in this paper and review their arrangements accordingly, the FCA said.