Former FCA manager says regulator wrong about UK asset management

Canary WharfDan Waters, former asset management sector leader at the UK financial regulator, has told his previous employer that he “fundamentally disagrees” with the regulator’s claim that the UK fund industry is uncompetitive.

He said the UK fund market has the “hallmarks of a highly competitive industry” and that fund fees were steadily falling.

Waters made the remarks in the official response by ICI Global, a fund management trade body where he is now managing director, to the asset management market review by the Financial Conduct Authority (FCA).

“ICI Global agrees with the FCA about the importance of robust competition within the fund industry, but we fundamentally disagree on the basic conclusion of the report that the UK fund industry is not competitive,” Waters said.

ICI Global produced data to essentially dispel the myth that fund charges in the UK are significantly higher than in the US.

Ongoing charges for active UK equity funds are only 11 basis points higher than expense ratios for roughly comparable US funds. Charges for equity index trackers – excluding ETFs – are the same, according to ICI Global research.

Critically, the ICI Global data stripped out distribution charges and considered whether funds were sold to UK investors or not.

If distribution charges were added in, and if sterling and non-sterling share classes were considered, ongoing charges for fund investors would be higher: 1.33% for active equity Ucits funds, versus 0.84% for comparable US funds.

Without distribution charges – in other words, using “clean” share classes – and counting only share classes in sterling, the margin slips for active funds available to UK investors, to 0.86% in the UK, versus 0.75% in the US.

ICI Global said the FCA seeks with its report into UK fund management to “depict a highly uncompetitive market that the data, including the FCA’s own findings, simply don’t support”.

Much of the evidence in the report is “consistent with a market where fund providers compete vigorously for investor business”.

“We hope our analysis will assist the FCA in reconsidering the research underpinning its report, in order to avoid regulation that could distort markets and reduce investor choice,” the trade body said.

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