FCA publishes terms of reference for asset management market study

The Financial Conduct Authority (FCA) has set out the areas it will focus on in its market study into competition in the asset management industry. Over the next year the FCA will assess:

  • how asset managers compete to deliver value;
  • whether asset managers are motivated and able to control costs along the value chain; and,
  • what effect investment consultants have on competition for institutional asset management.

In addition, the FCA will look at whether there are any barriers to innovation and/or technological advances in asset management.

The FCA will consider both retail and institutional investors in this study.

Christopher Woolard, director of strategy and competition at the FCA, said:

“Asset managers provide an important economic function, bringing together those with money to invest and companies and governments that need capital. Given the significant role they play in the economy, it is essential that competition works effectively for these services.

“The UK is a world leader in asset management. Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services – which we expect to further strengthen the UK’s position as a major centre for asset management.”

Following today’s publication, the FCA will shortly approach market participants for information and data to look into the issues set out above. In addition, the FCA will host roundtables and meetings throughout the study.

The FCA aims to publish interim findings in summer 2016 and a final report by the early 2017. The interim findings will indicate where the FCA has found any areas of concern and explain what they are and how it proposes to address these concerns. The FCA will also set out any areas where few or no problems have been found.

The UK is Europe’s largest asset management market, with around £6.6 trillion invested. This includes around £2.1 trillion of pension fund investments, £1.2 trillion in retail investment products and £0.4 trillion in public sector and charity investments. There is a further £1 trillion investment in insurance products and £1 trillion invested in non-mainstream asset management products – both of which will include pension fund investments.

The FCA announced its intention to undertake a market study into asset management in its 2015/16 business plan. This followed feedback received as part of the wholesale sector competition review in 2014 which indicated there might be competition issues in asset management. In particular:

  • the difficulty investors have in making sure they are getting value for money and in monitoring the performance of asset managers;
  • the role of investment consultants and potential conflicts of interest arising from the provision of advice and asset management services
  • the incentives and ability of asset managers to control costs incurred on behalf of investors; and
  • the bundling of ancillary services and the quality of some of the services provided.

The market study into asset management will be the second competition study looking into wholesale markets, following the publication of terms of reference on investment and corporate banking in May 2015.

The FCA was established with an operational objective to promote competition in the interests of consumers. Market studies are a tool to analyse the effectiveness of competition in the markets the FCA regulate.

Notes to editors 

  1. The terms of reference.
  2. The FCA undertook a review of competition in wholesale markets to identify whether there were any areas where competition was not working effectively. It received over 40 written responses to its call for inputs and met over 70 market participants through a mixture of round tables and one-on-one meetings. The findings of this review were published in February 2015, and led to the launch of a market study into investment and corporate banking and this market study.
  3. From 31 December 2016, manufacturers and distributors of packaged retail and insurance-based investment products (PRIIPs) will be required to provide retail investors with a Key Information Document (‘KID’) under the PRIIPs Regulations.
  4. MIFID II comes into force in the UK on 3 January 2017 and some of its provisions will apply to investment firms in the asset management sector.
  5. In August, the FCA and HM Treasury launched the Financial Advice Market Review (FAMR), which will examine how financial advice (including advice on retail investments) could work better for consumers.
  6. On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  7. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system, and to promote effective competition in the interests of consumers.
  8. You can find more information about the FCA, as well as how it is different to the PRA.