FCA to Reign in £7 Trillion Asset Management Industry in the UK

The UK Financial Conduct Authority (FCA) is outlining a list of some new remedies that it is proposing to regulate the asset management market. The new framework has been agreed upon after several months of consultations with industry participants and clients.

The UK asset management industry is currently looking after £7 trillion ($9 trillion) and is introducing some new rules that existing products from retail brokers like IG Group are already implementing.

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Commenting on the news, the CEO of the FCA, Andrew Bailey, said: “The asset management sector is important to the economy, managing the savings of millions of people and in the current low interest environment it’s vital we help people earn a return on their savings. We need a competitive sector, attracting investment into the United Kingdom which also works well for the people who rely on it for their financial wellbeing.”

“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,” Bailey elaborated.

IG Group Official Response

One of the companies that immediately responded to the FCA’s commitment to rein in fees and benchmarks is IG Group.

The company’s Head of UK & Ireland, Ian Peacock, outlined in a statement sent to Finance Magnates: “Hidden charges have been materially eating into investment returns for years. Being upfront about charges, allowing investors to see their total cost of ownership, will inevitably lead to fee savings overall, meaning a greater portion of an investor’s returns can be reinvested, generating further earnings.”

“We have long held the view that many wealth management providers fall short when it comes to fee transparency, leaving investors in the dark about the true cost of investing and the impact it will have on their returns. The changes from this review will hopefully mean that investors are finally no longer blindsided by fees,” Peacock elaborates.

IG has been offering its Smart Portfolios, aiming to provide retail investors with a low cost entry point into the asset management market.

While the FCA’s analysis found evidence of “sustained, high profits over a number of years”, the regulator is also outlining that investors have not been fully informed about the objectives of the funds where they are putting their money.

The UK watchdog is also highlighting the need to intervene in the investment consultant market. The UK Treasury is recommended to require the providers of such services to beregulated by the FCA.

New FCA Rules

The UK financial regulatory agency is looking to make asset managers more responsible and act in the best interest of investors. To achieve this, the regulator will require fund managers to appoint a minimum of two independent directors to their boards. Company will also be required to introduce technical changes to improve fairness around the management of share classes and the way in which fund managers profit from investors buying and selling their funds.

The FCA will also require the disclosure of a single, all-in-fee to investors and will mandate firms to support the consistent and standardised disclosure of costs and charges to institutional investors.

In order to facilitate the entry of pension schemes into the market, the regulator will work with the UK Department of Work and Pensions (DWP) to remove existing barriers in the area.

Measures for Intermediaries

The UK regulator will launch a market study into investment platforms and will insist on regulating investment consultants. Some do not require consultation and are now being taken forward.  The FCA has published a consultation paper, focusing on the remedies related to governance and technical changes to promote fairness for investors.

Some remedies will require further work in light of other legislative initiatives, including MiFID II, and will be consulted on later in the year. Finally some of the measures are dependent on the outcomes of the proposed working groups. Full details of the timetable can be found in the final report.