FCA sets out next steps to improve competition in the UK’s asset management industry

The Financial Conduct Authority (FCA) has today published the latest step in its response to the concerns identified through its asset management market study. This is part of a package of remedies to ensure fund managers compete on the value they deliver, and act in the interests of the millions who entrust them with their savings.

Today’s publications include:

  • Final rules following a previous consultation, focused on the duties of fund managers as the agents of investors in their funds
  • A consultation on proposed rules and guidance, focused on improving the information that investors get about funds

These documents address concerns outlined in the June 2017 final report of the asset management market study and are an important part of a wider package to improve competition in this industry for consumers.

The final rules and guidance cover:

  • a requirement for fund managers to make an annual assessment of value, as part of their duty to act in the best interests of the investors in their funds
  • a requirement for fund managers to appoint a minimum of two independent directors to their boards
  • the introduction of a new prescribed responsibility under the Senior Managers and Certification Regime to bring individual focus and accountability
  • technical changes to (i) improve fairness around the way in which fund managers profit from investors buying and selling their funds and (ii) facilitate the movement of investors into cheaper share classes

These measures will deliver better protection for all investors, both those who are actively engaged with their investments and those who don’t follow their investments closely.

To address its concerns that even actively engaged investors do not find it easy to choose which fund is right for them, the FCA is today publishing a further consultation on remedies related to funds providing better information about what they are offering. This includes proposals on:

  • how fund objectives can be expressed more clearly and be more useful to investors
  • making it clearer when funds are benchmark-constrained, or limited in how far their holdings can differ from the weightings of a benchmark index
  • ensuring that where a fund uses one or more benchmarks, this is disclosed consistently and explained to investors

The FCA has also today published an Occasional Paper setting out the results of behavioural research which looked at how different ways of presenting information about charges affected investors’ decision-making and their understanding and awareness of charges. This paper can be read here.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:

“The investment choices open to people, and the decisions they make on how to invest, can have a profound impact on their financial health. They can also have consequences for their families, as well as society as a whole. That’s why it is important the asset management industry, which looks after the savings of millions of investors, is working as well as possible. But our market study found evidence of weak price competition in a number of areas.

“Today’s announcements are an important part of a package of measures that, combined, aim to achieve a fair, transparent, open and accountable market.”

Firms have 18 months to implement the rules on assessment of value and appointment of independent directors and 12 months for the rules related to the way in which fund managers profit from investors buying and selling their funds.

Notes to editors

  1. PS18/8: Implementing asset management market study remedies and changes to our Handbook
  2. CP18/9: Second consultation on remedies following the asset management market study
  3. Occasional Paper No. 32: Now you see it: drawing attention to charges in the asset management industry
  4. FCA’s Asset Management Market Study
  5. The FCA was assisted by members of the Fund Objective Working Group in developing the proposals on fund objectives, in conjunction with consumer input, as to how objectives may be explained more clearly to investors.
  6. Alongside this, other work continues which will benefit investors by improving cost transparency. The FCA is supporting an independent Institutional Disclosure Working Group which is on track to make recommendations on a framework to support consistent disclosure of costs and charges to institutional investors.
  7. Asset Management Market Study: Final decision to make a Market Investigation Reference on investment consultancy services
  8. On 1 April 2013, the 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).
  9. 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.
  10. Find out more information about the FCA.