The Financial Conduct Authority (FCA) will move to regulate transparency and costs in the investment management sector if industry-led attempts to address the issue do not go far enough, its director of strategy and competition has said.
Speaking at the PLSA investment conference last week, Christopher Woolard said the FCA supported attempts by the industry to develop greater cost transparency by establishing a standardised template to disclose asset management-related fees and charges.
However, he said the watchdog had received “mixed feedback” from stakeholders on whether these proposed measures go far enough, and if they are preferable to regulatory intervention.
He added: “If we find the industry-led initiatives are not likely to be successful or sufficiently comprehensive, we will consider the need for further regulatory intervention.”
Woolard (pictured) said the FCA’s study found the market working well for large, sophisticated institutional investors able to negotiate good deals with their managers.
But he described a “long tail of smaller institutional investors” – the 32,000 small schemes with typically less than 10 members – for whom the market was not functioning well.
“Asset managers are entrusted with a very clear social responsibility to the nation’s savers,” Woolard said. “Our job as the regulator is to make sure that we get the settings right for this market – that it is efficient, that it is effective and that is serves the interests of savers.
“We are fully appreciative of the commercial complexity that the industry is operating under – and the complexity of the policy environment. But our findings point to a need for reform.”
Woolard said the FCA received more than 150 written responses to the consultation which it will now digest before making clearer the precise implications for the long-term savings market in the summer.
The Transparency Task Force (TTF) welcomed Woolard’s approach, but founder Andy Agathangelou urged the FCA not to be sold the idea of a “patchwork quilt of protocols” on vital issues such as costs disclosure.
He said there was a risk of different parts of the industry introducing ‘codes of conduct’ designed to take care of their own part of the market, referring to the Investment Association’s (IA) costs disclosure code currently being put together for its members.
Agathangelou said: “We believe this type of approach may result in inconsistency, confusion and even the potential for ‘gaming’; issues so serious that they have the potential to undermine the efficacy of a robust regulatory framework.”
The IA hit back, saying its new disclosure code would be subject to “full public and regulatory scrutiny” before being adopted. It also noted that the TTF had given input to the code.
An IA spokesperson added: “This is the only framework currently in existence which aims to align with both UK and EU regulation, providing a consistent and transparent foundation for all client reporting.
“The code has been developed with the input of an independent advisory board, chaired by NEST chief investment officer Mark Fawcett, as well as representatives from the Financial Services Consumer Panel, Transparency Task Force and Local Government Association.”
