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Terry Smith’s fund group faces a review call from the Financial Conduct Authority

Terry Smith’s funds business has been asked by the Financial Conduct Authority to conduct an audit of its operations

Terry Smith’s funds business has been asked by the Financial Regulator to conduct an investigation into its operations, The Mail on Sunday can reveal.

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

Section 166 reviews are requested by the FCA to “provide an independent view of aspects of a company’s activities which give us cause for concern or where we require further analysis,” according to the regulator’s annual report.

Audit: The FCA has requested Fundsmith to carry out an audit conducted by independent consultants in accordance with Section 166 of the Financial Services and Markets Act

Smith, 68, is one of the UK’s most renowned stockpickers and opened his own shop in 2010.

His company manages over £28bn in savings and his largest fund, Fundsmith Equity, has returned over 500 per cent since inception. Section 166 reviews may be requested for concerns related to governance, controls and risk management assessments.

They also include reviews of how funds handle client money, conduct, controls to combat financial crime and information management.

However, the FCA does not publicly disclose details of its Section 166 requests. The verified companies are not allowed to discuss the matter. Fundsmith and the FCA declined to comment.

Section 166 requests are not investigations, but third-party investigations of a company. They are often conducted by one of the “Big Four” consultants – PwC, Deloitte, KPMG and EY – or leading law firms.

Between January and March, the FCA issued 11 of those orders. In 2020, it was reported that a number of US banking giants have received orders from regulators about the quality of their financial reporting.

Smith, who lives in Mauritius, recently attracted attention after criticizing consumer giant Unilever for being “obsessed” with its sustainability credentials.

In his annual letter to shareholders, he said, ‘A company that feels it has to define the purpose of Hellmann’s Mayonnaise has clearly lost the thread in our view.’

Fundsmith made record profits of £57.7 million in the year to March 2021. Fundsmith Equity’s top 10 holdings include Microsoft, L’Oréal, Estée Lauder, Philip Morris and LVMH.

On its website, Fundsmith summarizes its investment strategy as holding “a small number of high quality, resilient global growth companies that have good value and that we plan to hold for the long term.”

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Terry Smith’s fund group faces a review call from the Financial Conduct Authority

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