How Will Regulation Impact Your IGC’s Approach to Investment Pathways

The FCA’s Conduct of Business Sourcebook (COBS) sets out the rules in respect of investment pathways and the duties of Independent Governance Committees (IGCs). The rules are binding obligations, and any breach may be subject to enforced action.

However, FCA expectations are also formed through other means such as COBS guidance (which is non-binding), and the publication of Policy Statements.

In terms of IGCs, the FCA published a Thematic Review in June 2020 on their effectiveness. The FCA concluded that some IGCs did not adequately challenge providers in areas where there was a risk of consumer detriment. Also, some criticisms of IGCs appeared to be based on FCA expectations which had not previously been expressed in full.

The purpose of this article is to summarise – based on published Policy Statements and COBS rules – the expectations that have been formally communicated by the FCA to date. This should assist your IGC in formulating the approach it intends to take to fulfill its duties in respect of investment pathways.     

How did we get here?

Policy Statement (PS)19/21, published in July 2019, sets out the FCA’s final rules on investment pathways. While these rules are not directly applicable to IGCs, they are essential to the extent that they set out the obligations and expectations of you as product providers.

PS19/30, published in December 2019, focuses specifically on IGCs. It sets out the FCA’s final rules on extending the remit of IGCs.

What are the FCA Expectations?

The FCA’s two principal requirements are that IGCs:

  1. assess the appropriateness of the investment solutions selected by the product provider; and
  2. assess whether customer communications are fit for purpose

These two requirements are inextricably linked and cannot be considered independently of each other.

Assess appropriateness

As per PS19/30 1.11, the outcome sought by the FCA is that “… pathway solutions offer value for money. That means costs and charges that are good value relative to the quality of the pathway solution and associated services, and a pathway solution that is appropriate for the pathway objective and the characteristics of the consumers likely to be using it”.

And, in PS19/30 3.12, the FCA explains what the IGC must assess: “we mean the investment design of the pathway solution, including the underlying investments and allocations to these. To align the characteristics of pathway solutions with the interests of pathway solution investors, the firm would need to take into account the prescribed objective of each pathway solution, as well as the characteristics of the consumers that the firm expects to be using its pathway solutions”.

COBS 19.5.5 R (2A) (a) & (b) specifically require that IGCs assess: “whether the pathway investment offered by the firm: (i) is designed and managed in the interests of pathway investors and (ii) has a clear statement of aims and objectives; whether the characteristics and net performance of the pathway investment are regularly reviewed by the firm to ensure alignment with the interests of pathway investors and that the firm takes action to make any necessary changes”.

Assess customer communications

In terms of product providers, as per CP 19/21 3.13, the FCA’s expectations are that: “We do not want consumers to select a pathway solution if the risk profile of the solution does not match their attitude to, or capacity for, risk. Providers must describe the riskiness of each investment solution that they offer, to enable consumers to make this assessment”. 

And, as per COBS 19.10.21 R (1) (b), product providers must: “describe to the retail client, using plain language, the level of riskiness of each pathway investment”.

In terms of IGCs, as per PS 19/30 3.12: “Any communications to relevant consumers are in the scope of the new rules. These may range from annual benefit statements to bespoke communications aimed at particular customers. The rules give IGCs the power to assess communications generally, including where communications are lacking”. 

COBS 19.5.5 R (2A) (f) specifically requires that IGCs assess: “whether the communications to pathway investors are fit for purpose and properly take into account the pathway investors’ characteristics, needs and objective.


While the FCA’s expectations have a reasonable degree of clarity, they are not as well-defined as might be hoped. There is a risk that the FCA’s future review of IGCs’ effectiveness in respect of investment pathways will be based to some extent on the benefit of hindsight. It would appear prudent that the IGC takes the time now to formulate the approach it intends to take in order to fulfill its duties in respect of investment pathways. 

So what next?

EV has developed a process that analyses each of the pathway solutions developed by a product provider in detail. This process culminates in the production and publishing of an Appropriateness Report. This report uniquely summarises the results of the analysis and forms a judgement as to the appropriateness of the pathway solutions which the product provider proposes to offer. 

The output from Appropriateness Report should also be invaluable to providers as part of their product design processes, and provide their IGC or GAA with evidence that they have undertaken the required due diligence and compliance efforts. 

Click here to learn more about the EV Appropriateness Report, or to download a preview.

Subscribe to the EV blog for latest industry news and insights

Subscribe to the EV blog for latest industry news and insights

Leave a Comment