The FCA is to launch a multi-firm review of Model Portfolio Services (MPS) and their compliance with the Consumer Duty.

The FCA’s Camille Blackburn, director, wholesale buy-side, has written to MPS managers and other asset managers this week to outline the review.

She says that the FCA will be looking in particular at potential conflicts of interest between different parts of the distribution chain.

In her letter she says: “MPS have been growing at pace. Though MPS sit outside traditional fund wrappers, these portfolios generally invest in investment funds and asset managers are active in constructing and distributing these services.

“This year, we will start a multi-firm review of MPS looking at how firms are applying the Duty, to provide confidence that investors are receiving good outcomes from MPS and share good practice on how firms are doing this."

Ms Blackburn says the letter will also detail the FCA’s current supervision priorities and will help meet its commitment to, “rigorously prioritise resources in line with our approach to supervision” and to support firms to understand these priorities.

The FCA’s three priorities in the asset management and alternatives strategy this year include supporting confident investing in private markets, building firm and financial system resilience against market disruption and securing positive outcomes for consumers

The FCA wants to reinforce the UK’s role as a leading centre for asset management which it says is the largest asset manager centre in Europe and the second largest globally. It plays a central role in the UK economy and by channelling investments into the economy firms facilitate the delivery of good investment outcomes for investors, efficient functioning of capital markets and contribute to economic growth, she said.

Firms in the sector manage and advise assets totalling £14.3 trillion. Approximately 2,500 firms operate a range of business models across public and private markets, offering fund management, discretionary investment management, and advisory services.

In the last 12 months, the sector has seen growth in areas such as private credit and infrastructure, as well as in products and services such as exchange traded funds (ETFs) and model portfolio services (MPS), she said.

She said supporting the UK’s status as an international investment hub and fostering growth and innovation is important and in line with the FCA’s secondary international competitiveness and growth objective.

She said the FCA would engage with asset managers to help, “unlock capital investment and liquidity, accelerate digital innovation to improve productivity as well as taking forward ideas to “reduce the regulatory burden.”

She added that poorly managed conflicts of interest increase the likelihood and severity of investor harm. Conflicts may increase where firms operate "multiple intersecting business lines, continuation funds, co-investment opportunities or partner with other financial institutions."

The FCA outlined in its 2024 interim portfolio letter a multi-firm review of unit-linked funds. She said work to assess price and value across the value chain for unit-linked funds and to ensure good outcomes for investors is continuing and the FCA plans publish its findings, including good practices, later this year.