The FCA has written to asset managers warning of potential failings in governance.

Moody’s has detailed the UK Financial Conduct Authority communication in a research note which says the FCA is concerned that the asset management industry is at risk of harming customers because of failings in governance and other areas, and that correcting these shortcomings would be among its supervisory priorities.

Moody’s says the letter is strong indication that the regulator plans to tighten its scrutiny of the funds sector, leading to more onerous requirements. Tougher requirements should make asset managers’ funds more resilient to financial shocks, help strengthen client trust in these products and reduce fund managers’ exposure to reputational risks, even though it may come at the expense of higher compliance costs in the near term, says the ratings agency.