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Competition weak in asset management says FCA, as it announces remedies

28 June 2017

The Financial Conduct Authority (FCA) has published the final findings of its asset management market study and announced its package of remedies.

The FCA says it has found that price competition is weak in a number of areas of the industry.

The Regulator said that despite a large number of firms operating in the market, its analysis had found:

• evidence of sustained, high profits over a number of years

• that investors are not always clear what the objectives of funds are,

• fund performance is not always reported against an appropriate benchmark.

• concerns about the way the investment consultant market operates.

The FCA said the final report confirms the findings set out in the interim report published last year.

The remedies the FCA is taking forward fall into three areas:

Better protection for investors:

• strengthen the duty on fund managers to act in the best interests of investors and use the Senior Managers Regime to bring individual focus and accountability to this;

• require fund managers to appoint a minimum of two independent directors to their boards;

•  introduce technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds.

Drive competitive pressure on asset managers:

• support the disclosure of a single, all-in-fee to investors;

• support the consistent and standardised disclosure of costs and charges to institutional investors;
• recommend that the DWP remove barriers to pension scheme consolidation and pooling;
• chair a working group to focus on how to make fund objectives more useful and consult on how benchmarks are used and performance reported.

Help improve the effectiveness of intermediaries:

• launch a market study into investment platforms;
• seek views on rejecting the undertakings in lieu of a market investigation reference regarding the institutional advice market to the Competition and Markets Authority;
• recommend that HM Treasury considers bringing investment consultants into the FCA’s regulatory perimeter.

Andrew Bailey, chief executive at the FCA (pictured) said: “The asset management sector is important to the economy, managing the savings of millions of people and in the current low interest environment it’s vital we help people earn a return on their savings. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.

“We have listened carefully to the feedback we received in response to our report last November. We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”

The remedies will be undertaken in stages, with those that do not require consultation being taken forward.

Some remedies will require further work in light of other legislative initiatives, including MiFID II and the FCA will consult on these later in the year.

Also, some of the measures are dependent on the outcomes of the proposed working groups.

The FCA also published today a consultation paper focussing on the remedies related to governance and technical changes to promote fairness for investors, and the consultation on rejecting the undertakings in lieu referred to above.

Read the Study in full

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