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UK Regulator To Continue Crackdown On Asset Management Industry

Published: 19 April, 2017

The UK’s Financial Conduct Authority has outlined its priorities for this year and next in its latest Business Plan.

The UK’s financial watchdog has said the nation’s £7 trillion ($8.9 trillion) asset management industry “remains a priority area” for regulation efforts this year and next as it finalises a wide-reaching market study of the sector.

Last year, the Financial Conduct Authority published the interim report to its asset management market study, which unveiled weak price competition across numerous areas and suggested investors “may pay too much for investment management services”.  In its 2017/18 Business Plan, published earlier this week, the FCA said: “It is essential that competition in this sector works effectively and this remains a priority area for us. Because of its increasingly important interaction with other wholesale participants, we also see the sector playing a key role in upholding overall market integrity and contributing to financial stability.”

The regulator has said it will wrap up its market study of the UK asset management industry by the second quarter of this year, and will consult on proposed remedies and interventions. In its Business Plan, the FCA compiled a list of seven bullet-points that outlined what it saw as key issues within the sector. These included weak governance, which could lead to weak oversight of portfolios; unidentified or poorly-managed conflicts of interest; poor advice from investment consultants; poor liquidity management; and market abuse.

To address these concerns, the regulator is seeking to introduce new measures to ensure asset managers act in the best interest of investors. Among the speculative changes are an all-in fee, allowing investors to “clearly see what is being taken from the fund”, the FCA said.  The FCA says it is also looking to require increased transparency and standardisation of costs in the information provided to institutional investors, and to impose requirements for greater and clearer disclosure of fiduciary management fees and performance.

“We found that price competition is weak in a number of areas and that, despite a large number of firms in the market, the asset management industry has seen sustained high profits over a number of years,” the FCA said. “In addition, investors are not always clear what the funds’ objectives are and fund performance is not always reported against an appropriate benchmark.”

The watchdog continued: “We are planning a number of interventions in this sector. This work should ensure that liquidity management in funds allows for a fair treatment of all customers, including those who remain invested, and does not amplify disruptions to the financial system in stressed market conditions.”

Such reforms could in some ways be as significant for the end-investor as the Retail Distribution Review programme of reforms brought in at the start of 2013. Internationally, regulatory bodies in countries such as Singapore, Hong Kong and the US are seeking to improve disclosure of fees and costs, and push back against potential conflicts of interest in financial advice and asset management.

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