Asset Management sector under scrutiny from UK regulator

The Asset Management industry is positioned to be the main focus of the Financial Conduct Authority (“FCA”). On 28 June 2017, the FCA published the final report of its Asset Management Market Study. This follows on from the interim report published in November 2016. In the publication, the FCA has highlighted a number of pertinent findings around the area of investor protection, transparency and governance and has announced a package of remedies to address areas of concern.

This comes at a time when Asset Management is going through an unprecedented period of flux and disruption namely; Brexit, increase in passive management, lower commissions, rise in bond rates and the growing influence of Fintechs. These changes and developments are tangibly impacting asset management companies. Most importantly, the strengthening of existing regulations such as Markets in Financial Directive (MiFID), European Market Infrastructure Regulation (EMIR), Packaged Retail and Insurance-based Investment Products (PRIIPs) has forced upon asset managers new significant challenges.

The FCA has outlined a number of remedies to address key findings of the market study as outlined below:

• Introduction of an all-in fee;
• Strengthen duty on asset managers to act in the best interest of investors;
• Increase transparency and standardisation of costs;
• Chair a working group to focus on how to make fund objectives more useful and consult on how benchmarks are used and performance reported;
• Improve the effectiveness of governance bodies; and
• Launch a market study into investment platforms.

Remedies will be implemented in stages. Certain remedies can be effected immediately without consultation. Others will require a consultation process with potential scope for legislatives initiatives. The FCA published a separate consultation paper alongside the final report setting out its proposals in relation to fund governance, risk-free box profits and share class switching. Asset managers are required to respond to this paper by the 28th of September this year.

To read our summary of this market study including an analysis on the future impact and challenges for asset managers, click here.

The FCA Asset Management market study is available on the FCA website here.

Article written by Cécile Rigault and Niamh Doyle.