Terry Smith’s fund group faces review call from watchdog

TERRY Smith’s fund business has been asked by the financial watchdog to undertake a review of its operations, The Mail on Sunday can reveal.

The Financial Conduct Authority has requested that Fundsmith complete a review, conducted by independent consultants, under Section 166 of the Financial Services and Markets Act.

Section 166 reviews are requested by the FCA in order to provide ‘an independent view of aspects of a firm’s activities that cause us concern or if we need further analysis’, according to the regulator’s annual report.

Smith, 68, is one of Britain’s most renowned stock-pickers, setting up his own shop in 2010.

His company manages more than £28billion of savers’ cash and his largest fund, Fundsmith Equity, has produced returns of more than 500 per cent since launch.

Section 166 reviews can be requested over governance, controls and risk management assessments concerns.

They also include reviews of how funds handle customers’ money, conduct, anti-financial crime controls and information management.

However, the FCA does not publicly disclose any details of its Section 166 requests. Firms under review are restricted from discussing the matter. Fundsmith and the FCA declined to comment.

Section 166 requests are not investigations but reviews of a firm by a third party. They are often carried out by one of the ‘big four’ consultants – PwC, Deloitte, KPMG and EY – or leading law firms.

The FCA issued 11 of these orders between January and March. In 2020, it was reported that a string of

US banking giants were issued orders by the regulator over the quality of their financial reporting.

Smith, who is based in Mauritius, garnered attention recently after he slammed consumer giant Unilever for being ‘obsessed’ with its sustainability credentials.

He said in his annual letter to shareholders: ‘A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot.’

Fundsmith made record profits in the year to March 2021, of £57.7 million. Fundsmith Equity’s top ten holdings include Microsoft, L’Oréal, Estée Lauder, Philip Morris and LVMH.

On its website, Fundsmith sums up its investment strategy as holding ‘a small number of high quality, resilient, global growth companies that are good value and which we intend to hold for a long time’.