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FCA market study takes action on fund governance and costs

Businessman_ideasFund governance is one of the key areas of focus for the UK financial regulator’s asset management reforms.

The Financial Conduct Authority (FCA) has published a “package of remedies” for the asset management industry and it includes a requirement for asset management firms to appoint at least two independent directors to their board of directors. 

A fuller list of the proposals, some of which require more consultation, can be seen here along with more industry feedback.

The report also reflects the FCA’s dissatisfaction with the industry’s level of profitability. The regulator’s earlier interim report had found that price competition in a number of areas in the industry was weak and “despite a large number of firms operating in the market”, there was evidence of “sustained, high profits over a number of years”.

Consequently, the FCA proposes 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”.

Both the governance and the share class proposals are intended to help provide protection for investors who are not well placed to find better value for money.

Another crucial area of the report is cost transparency, and the FCA proposed to introduce an all-in fee.

Martin Gilbert, chief executive of Aberdeen Asset Management, said he was in favour of all-in fees.

He also more broadly welcomed the report, saying: “I strongly welcome the FCA’s market study as it provides clear guidance on how the FCA wishes the industry to operate in the future.  Its recommendations to improve investor protections through better governance and to drive competition through greater transparency of fees and fund objectives are constructive and sensible.”

Darren Philp, director of policy and market engagement at The People’s Pension, a pension provider, said: “The drive to ensure consistent disclosure by asset managers of the underlying investment costs will go a long way to delivering greater transparency in the industry and with it, greater member confidence. However, we are concerned that the FCA isn’t going as far as producing a standard, cross-industry template but is relying on the industry to take this forward.

“This could make it difficult to compare costs and we firmly believe that mandatory standardisation is the way forward.”

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