UK fund managers will have to assess the value they give customers each year as part of a package of rules rolled out by the Financial Conduct Authority (FCA).
Under the new rules, which were published on Thursday (5th), management firms will also have to appoint at least two independent directors to their boards, prompting concerns there will be not enough time to source talent before the expected September 2019 deadline.
The package follows the regulator’s final report of an asset management market study in June 2017 aimed at improving competition.
The rules will see a prescribed responsibility under the Senior Managers and Certification Regime introduced to bring greater individual responsibility for bosses working in financial services.
There will also be technical changes that need to be implemented in 12 months for improving fairness in the way fund managers profit from investors buying and selling their funds, and to facilitate the movement of investors into cheaper share classes.
Firms will have 18 months to implement the rules on providing investors with a value assessment and to appoint independent directors.
Though welcomed by commentators, the requirement to appoint independent directors is expected to be difficult to meet due to a limited supply of suitable people.
Simon Turner, partner in EY’s asset management practice, said: “The implementation timeframe for Board changes is expected to be September 2019, which helpfully aligns with the likely timeframes for the Senior Managers and Certification Regime.
“However, with just under a year and a half until the deadline, Boards will need to act quickly to appoint two independent directors from a relatively small talent pool, and prepare and implement new standards that effectively demonstrate they are providing value to their investors.”
Nevertheless, Turner said the requirement for independent directors would align UK standards of fund governance with other international approaches.
Other commentators also welcomed the FCA changes. Andrew Strange, PwC director, said the regulator had “struck a pragmatic balance between prescriptive rules and flexible guidance”.
"Changes to focus on wider value, rather than just charges, will better enable firms to demonstrate this value to their customers, although the new public statements could risk overloading consumers with information,” he said.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “It is important the asset management industry, which looks after the savings of millions of investors, is working as well as possible. But our market study found evidence of weak price competition in a number of areas.”
Sean Hagerty, head of Vanguard Europe, noted the FCA’s emphasis on “disclosing costs and charges in a meaningful way” and said UK investors still struggled to understand fund charges.
“The FCA’s proposed treatments, including a ‘cost warning’, have the potential to put investors in a better position to understand how their investments could perform, and how they are performing,” he said.
The regulator also announced a further consultation on remedies regarding funds proving better information about their offering, including:
• How fund objectives can be expressed more clearly and be more useful to investors
• Making it clearer when funds are benchmark-constrained, or limited in how far their holdings can differ from the weightings of a benchmark index
• Ensuring there are explanations for investors and consistent disclosure where a fund uses one or more benchmarks
The FCA report can be seen here.
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