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Regulatory round-up: July 2017

FCA market studies: review of Asset Management closes, while Investment Platforms review opens

· Regulatory update,Asset management,Investment Platforms

While for some, this month's regulatory headline would be the issue of pension freedoms (findings summarised here), it's a twin development in market studies that's really caught our eye.

Within the last few weeks, the regulator has issued a final report on its systematic review of the asset management sector, while getting a brand new study on investment platforms underway.

The origins of the asset management review date back almost two years, when the FCA set out to understand the nature of competition in the sector, and its impact on value to investors (both retail and institutional). Preliminary findings were announced last November, and these are confirmed and extended in this month's report.

They include concerns about:

  • Weak price competition across the sector, particularly among providers of actively-managed retail services
  • Little direct relationship between charges and the performance of active retail funds
  • A lack of clarity in communications about fund objectives
  • The role of intermediaries, particularly the absence of economies of scale for retail investors when pooling their money through direct-to-consumer platforms.

Christopher Woolard, the FCA's Director of Strategy and Competition, captures the mood in a piece for the FT:

“We have found weak competition in some parts of the market. We are in no doubt that investors could be better served. The search for good value is impeded by opaque pricing and hard-to-compare performance reporting. Some fund managers do not always consider the interests of investors whose money they look after.”

Combined, these findings pack quite a punch, and so part two of the report considers future rule changes. The proposals are subject to consultation, and firms have until 28 September 2017 to digest them and offer their views. Highlights of the consultation paper include strengthening duties to act in the best interests of clients; new governance rules; changes affecting share class switching and risk-free box profits; a working group to consider clarifying fund objectives; and proposals affecting investment consultants.

As always, our team will be sifting through the consultation to identify key focus areas for clients. If you'd like to discuss your response, or any contentious elements of the final report, don't hesitate to get in touch with Richard or Gillian.

The newly-announced investment platforms market study has arisen directly from some of the concerns identified in the asset management review. To kick things off, the FCA has published the terms of reference, which indicate considerable breadth of scope. Focus will include:

  • Whether platforms help investors make good investment decisions, and represent value for money
  • How platforms compete and whether they use bargaining power to improve opportunities for investors
  • Whether relationships between investment platforms and other platforms, advisers, asset managers, and fund ratings providers, work in the interests of investors
The scope also suggests a wide range of platforms and intermediaries will be caught. Firms have until 8 September 2017 to provide input on the terms of reference, after which the full study will commence, and an interim report can be expected by the summer of 2018.
All in all, it'll be a year of investigations to keep the sector on its toes!
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