Regulatory update: MS15 / 2.3 - Asset management market study final report

Posted: 5th July 2017

Background

On the 28th June 2017, the Financial Conduct Authority (FCA) published the final findings of its asset management market study and announced a package of remedies it intends to take forward to address the concerns identified in the interim report into the sector.

The FCA launched its market study into asset management in November 2015. The market study was initiated because the FCA wanted to ensure that the market works well and the investment products consumers use offer value for money.

The interim report was published in November 2016, the report considered how asset managers compete to deliver value for both retail and institutional investors. The report indicated that there is weak price competition in several areas of the asset management industry.

The FCA consulted on their interim report findings and proposed remedies, they received 153 written responses and held discussions with almost 200 stakeholders from 135 organisations through a series of roundtable and one-to-one meetings. The FCA also undertook further work based on the feedback and the issues highlighted in the interim report.

FCA Chief Executive, Andrew Bailey, said:
“We have listened carefully to the feedback we received in response to our report last November. We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”

Key Points

The FCA has published a consultation paper on some of the proposed remedies, alongside this report. The overall package of remedies can be split into three groups.

Remedies to give protection to investors who are less able to find better value for money:

• Strengthening the duty on fund managers to act in the best interests of investors and introduce independent scrutiny of this
• Requiring fund managers to return risk-free box profits to the fund and disclose box management practices to investors
• Making it easier for fund managers to switch investors to cheaper share classes

Remedies to drive competitive pressure on asset managers:

• Supporting the disclosure of a single all-in fee to investors
• Supporting consistent and standardised disclosure of costs and charges to institutional investors
• Chairing a working group to provide investors with clearer and more useful objectives and consulting on how benchmarks are used and performance is presented
• Recommending that the Department for Work and Pensions (DWP) removes barriers to pension scheme consolidation and pooling

Proposal to improve intermediaries’ effectiveness:

• Proposing a market investigation referral to the Competition and Markets Authority (CMA) on investment consultancy services and seeking views on this proposal. A final decision on making this referral to the CMA will be announced in September 2017
• Recommending the Treasury considers bringing investment consultants into the FCA’s regulatory remit, depending on the outcome of the provisional market investigation referral to the CMA
• Launching a market study into investment platforms shortly

Regulatory Next Steps

The FCA is requesting responses to CP17 / 18 by the 28th September 2017, with final rules likely to come into force in 2018 with either six or 12 month transitional provisions dependent on the remedy.

The FCA is also intending to publish further consultation papers by the end of 2017.

Considerations for firms

Firms will need review the final findings of the market study and understand where they are currently positioned and where changes to regulation may leave them needing to augment their approach to protection, value for money and the performance of intermediaries.

The proposals affect firms across a wide range of aspects including internal governance and regulatory and marketing documentation. Firms should also be considering whether any of the FCA’s proposals could be included in their ongoing preparation for the Senior Managers and Certification Regime (SMCR) and the Second Markets in Financial Instruments Directive (MiFID II). Firms do, however, need to act now in relation to product design and implementation.

The proposed reforms, if taken forward, will be implemented in several stages, with some of the measures dependant on the outcome of the consultation.

Read the full market study.