Autorité des Marchés Financiers (AMF) Releases Update on SPOT Inspections of Financial Management Delegation Arrangements at French Asset Management Firms

The Autorité des Marchés Financiers (AMF) has released a summary of its SPOT inspections of financial management delegation arrangements at asset management companies.

During short, thematic inspections, the AMF looked “at the delegation arrangements of five asset management companies.”

Delegation of financial management is “a practice that does not in itself call for any particular comment on the part of the AMF.”

However, delegation, even within the same group, “does not relieve asset management companies of their responsibilities.”

In its summary, the AMF stresses the “importance of retaining sufficient in-house resources to effectively oversee a delegation and regularly assess its quality.”

The delegated management practices “at asset management companies was one of the Autorité des Marchés Financiers’ priority areas for its supervisory work in 2023.”

Asset management companies regularly contact the AMF wishing to “set up delegation structures for UCITS, alternative investment funds (AIFs) or management mandates, usually with the aim of drawing on the expertise of institutions specializing in specific investment strategies.”

Delegation may also be “the result of the increasingly frequent decision by certain international groups to set up specialised management units located in different countries.”

The AMF therefore wanted to “examine the conditions under which the asset management companies make use of delegated management.”

The AMF carried out, “for the period from 1 January 2020 to 30 June 2023, a series of short, thematic inspections (known as SPOT for Supervision of Operational and Thematic Practices) at five asset management companies belonging to international groups.”

In each case, the delegations conferred or “accepted were almost exclusively internal to their group.”

During its inspections, the AMF examined:

  • the organization and resources used to monitor the delegations: asset management companies must have sufficient in-house expertise and resources to enable them to monitor delegations effectively. This challenge is even greater at international groups, as specialised units have been set up to respond to the need to rationalise resources;
  • the process for selecting the entities to which financial management is entrusted: this selection must be the subject of a formalised process, even if there is no competitive procedure involving several candidates;
  • delegation agreements: these are written agreements between the asset management company delegating financial management and the institution entrusted with carrying out this management. The agreement defines the rights and obligations of each party, in particular the asset management company’s right to instruct the delegate and its ability to withdraw the delegation;
  • monitoring financial management delegations: the asset management company must monitor the services provided and regularly assess their quality. This assessment is essential: it enables the choice of the service provider to whom management has been entrusted to be confirmed or called into question over time, and continuous improvement of the service provided;
  • managing conflicts of interest: conflicts of interest may arise as a result of a delegation. An asset management company that delegates financial management must therefore define and implement appropriate supervisory measures and ensure that the institution to which it entrusts management does the same;
    the system for monitoring risks and for internal control.
    In its summary document, the AMF revisits the regulations, presents its findings, and highlights the good and poor practices observed.

Among the good practices, the regulator noted:

  • applying the provisions regarding delegation set out in the regulation on alternative investment funds (AIFM) to UCITS, and applying the provisions on outsourcing set out in the regulation on markets in financial instruments (MiFID II) and the AMF General Regulation to UCITS, AIFs and mandates;
  • recording a score for the various aspects of the service provided (quality of the reports received, frequency of ratio overruns and responsiveness in rectifying these, and the risk/return ratio) in a service provider monitoring table;
  • asking the future service providers, during the selection process, to provide their policy on conflicts of interest and to update this regularly.

Among the poor practices observed, the AMF highlighted:

  • the failure to provide documentary evidence that checks had been carried out on the service provided by the service provider;
  • an assessment of the quality of the service limited to merely examining the performance of the delegated portfolios;
  • not taking account of the various operational risks arising from the delegation of financial management in the risk map.

The AMF is an independent public authority responsible “for ensuring that savings invested in financial products are protected and that investors are provided with adequate information.”

The AMF also supervises the “orderly operations of markets.”


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