On June 28 the FCA published its highly anticipated Asset Management Study. This final report, which was initially commissioned in 2015, reviews the UK’s Asset Management sector impacting fund managers, pension schemes, investment consultants and fund platforms.
While the announcement delivered no big shocks, initial industry reactions have been varied in their interpretation of the study. “The FCA is sending a clear message about what sort of behaviours it expects” said Saker Nusseibeh, Hermes Investment Management while Daniel Godfrey, chief executive of the People’s Trust said “The regulator has gone light pretty much across the line”.
The FCA has put together a ‘package of remedies designed to bring together a consistent and coherent framework of interventions for the industry’. It will clearly take some time for the dust to settle on this and the impact on the Asset Management industry to be understood.
The regulator is clear the rules of the game will change with a heightened focus on the value for money the industry delivers. It believes the price competition in the market is too weak and a comprehensive package of reforms is needed to make competition work better and help both retail and institutional investors to make their money work well for them.
Greater transparency of the cost and charges has been a topic for several years. The FCA seems to have set out a simple path to follow; clear disclosure to institutional investors or an ‘all-in fee’ for retail investors, combined with potentially tightening rules on performance fees.
On the governance front, the report indicates a strengthening of the duty of fund managers to act in the best interest of investors, this will not mean a change in the law however. The value for money Asset Managers deliver to investors will be introduced through the Senior Managers and Certification Regime (SMCR, applicable to the wider financial services industry as of 2018).
Fund boards are to appoint two independent board members to improve governance structures. Some say this does not go far enough and it should have driven a far more independent board by the appointment of either an independent Chairman or a majority of independent board members.
Another criticism is that this comes at a crucial moment for the industry which is concentrating on MiFID II (which some argue addresses some of the highlighted issues) and Brexit. These, along with other regulatory changes have potential to be counterproductive for the industry and investors.
It’s fair to say the FCA is not introducing tough rules to revolutionise the market. The emphasis is on principles and consultation which will evolve the industry rather than revolutionise it. As Keith Baird of the Cantor Fitzgerald Europe said, “This report is not confrontational, indeed the tone is quite friendly.”