FCA publishes plans to improve UK asset management 'competitiveness'

Out-Law News | 29 Jun 2017 | 8:45 am | 2 min. read

The Financial Conduct Authority (FCA) has concluded its review of the UK's £7 trillion asset management sector, publishing a package of potential measures to improve competitiveness and increase investor protection.

Its proposed remedies, developed following a period of consultation with the industry and investor representatives, include strengthening the duty on fund managers to act in the best interests of investors through the Senior Managers Regime. It is also proposing the introduction of a single, 'all-in' fee for investment management services, and to begin a further market study into investment platforms.

The FCA is consulting on some of its proposed remedies, which include governance and technical changes, until 28 September 2017. It is also consulting until 26 July 2017 on its provisional decision to reject the undertakings in lieu of a reference that were offered and refer the investment consultancy services to the Competition and Markets Authority (CMA) for a market investigation. The FCA expects to publish its decision on whether to make such a reference by September 2017.

Additional changes will be implemented immediately. Others will require further consultation as a result of the EU's recast Markets in Financial Instruments Directive (MiFID II), which comes into force on 3 January 2018.

"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," said FCA chief executive Andrew Bailey. "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."

"The final report is not quite as final as it could be," said pensions expert Tom Barton of Pinsent Masons, the law firm behind Out-Law.com. "As appeared likely, the FCA has reserved judgement in a number of key areas and paved the way for consultation and investigation. The report also rightly notes that some of the interim findings are already being addressed by developments at European level, such as MiFID II."

"The story is therefore yet to unfold in full – but it will certainly include an interesting chapter on consolidation of pension schemes. The FCA's recommendation to the DWP to 'remove barriers' to consolidation should help the drive towards economies of scale," he said.

The UK's asset management industry is the second largest in the world, with around £6.9 trillion of assets under management. This figure includes over £1 trillion managed on behalf of individual UK investors, £3 trillion on behalf of pension funds and other institutional investors and around £2.7 trillion on behalf of overseas clients.

In an interim report, published in November last year, the FCA made a number of criticisms of asset management firms and others and has now set out a number of remedies.

The regulator has also made a number of recommendations aimed at investment consultants, who provide advice to pension funds and other institutional investors. These include the market study into investment platforms trailed by the FCA in its 2017/18 business plan; as well as the potential reference of the investment consultancy services market to the CMA. It has also recommended that it be given regulatory oversight over these services.

The investigation period for a CMA market investigation is 18 months, which in some cases can be extended by 6 months.  "A CMA market investigation can at times be intensive," according to competition law expert Robert Eriksson of Pinsent Masons. 

"The CMA often requires vast amounts of information to be provided under very tight deadlines, which can also involve third party companies that are not at the heart of the market investigation," he said.

"It is important to stress, however, that a market investigation would not be an investigation into any individual firms' potential infringement of competition law, but is market-wide and seeks to determine whether competition is working well within a market; and, if not, how to address that," he said.