The Financial Conduct Authority (FCA) has proposed making it compulsory for asset managers to fully disclose transaction costs incurred through investments made by workplace defined contribution (DC) pension schemes.
At present, independent governance committees (IGCs) and trustees of DC schemes are required to request and report on transaction costs as far as they are able, but the watchdog wants to introduce rules placing a duty on managers to provide, on request, a standard breakdown and full disclosure of aggregate transaction costs to schemes that, directly or indirectly, invest in their funds.
The FCA has proposed that transaction charges be broken down into categories of identifiable costs, which could include specific fees like taxes and securities lending costs.
A consultation paper released today, said: “Governance bodies of pension schemes have a duty to request and report on transaction costs as far as they are able. Without a matching duty on asset managers to provide full disclosure of these costs in a standardised form, scheme governance bodies may not be able to perform their function of assessing whether scheme members are receiving value for money.”
It added: “Currently, there is no standardised disclosure for reporting information about some types of transaction costs. The rules that we propose in this paper aim to set standards to provide clarity around these costs.”
The FCA is proposing that the costs disclosed are based on a comparison of the price at which an asset is actually traded with the value of the asset immediately before the order to transact entered the market, also known as the ‘slippage cost’.
It added where intraday market prices are not easily available, it proposes firms use the last available mid price, which may be the opening price, or the previous closing price where no subsequent price is available.
The FCA said the consultation ties in with its market study of the asset management industry currently underway which is asking a number of questions about the asset management value chain, including whether investors find it difficult to monitor asset managers and ensure they are getting value for money; and whether asset managers have the incentive and ability to effectively control costs incurred on behalf of investors.
The consultation closes on 4 January 2017.
