UK: FCA Asset Management Market Study - Interim Report

The FCA has published its Asset Management Market Study Interim Report, which can be accessed here, with annexes. The FCA sets down a clear marker as to its direction of travel. Clearly uninhibited by Brexit on the horizon, it is entirely consistent with the thrust of recent European regulatory initiatives, driving hard a consumer focused agenda that champions value for money, transparency and accountability to investors. The report picks up on many of the themes that have recently received material press attention, including:

• the relative value and performance of passive vs active funds;
• closet benchmark trackers;
• transaction costs (and adequacy of disclosure);
• profitability and (in the FCA's view) excessive rewards;
• the usefulness of past performance;
• the need for investor protection (for institutional as well as retail investors); and
• the role of intermediaries (not just retail intermediaries, but investment consultants too).

These matters are central to the UK asset management industry and will be of keen interest to all in the industry. The FCA puts forward a series of proposed 'remedies' that the FCA intends to dovetail with other forthcoming legislation changes (such as PRIIPs and MiFID II), including:

• enhanced duties on asset managers including to act in the best interests of investors and to use benchmarks appropriately;
• enhanced investor disclosure including an "all-in fee", greater clarity around investment objectives, clearer communication of fund charges and of fiduciary management fees; and
• tools to assist investors helping them identify persistent underperformance and to aid in switching.

The FCA will also explore the benefits of greater pooling of pension assets (as we have seen in the local government pensions area) and is consulting on whether it should make a market investigation reference to the CMA on the institutional investment advice market (i.e. targeting consultants advising pension fund investors).

The FCA is providing the opportunity to the public to comment on their "emerging thinking and analysis" and are seeking constructive engagement.

The above is a very high level digest, but many important matters will be contained in the detail. Comments are to be sent to the FCA at assetmanagementmarketstudy@fca.org.uk by 20 February 2017. We would encourage readers to participate.

Our team have been following developments relating to the market study closely since the outset. Please contact Nigel Farr, Scott Cochrane or Tim West if you have any questions or wish to know more.