FCA’s Asset Management Industry Report Pushes for More Transparency and Accountability

Traders Magazine Online News, July 10, 2017

Arzish Baaquie

The FCA’s final report on the Asset Management Industry had one clear underlying message permeating throughout the report – that the time for change had arrived and that there was a critical need for further transparency and accountability in the industry.

From our viewpoint, four potential reforms stood out;

•  support for the single ‘all-in’ fee brought about by MiFID II, 
•  increased emphasis on fund managers having to act in their investors’ best interests,
•  the concept of a ‘standardized disclosure template’ and
•  The inclusion of two independent directors on fund boards.
  

 

The all-in fee proposal is a clear indicator that the FCA has its sights on the fund managers’ fee structure – in conjunction with the upcoming MiFID II legislation, this cements the notion that things simply cannot carry on as they used to, within the asset management industry. The all-in fee idea is particularly relevant to the area of investment research, which must start being accounted for in a transparent, and inducement-free, manner.

The FCA’s sentiment towards increasing the accountability and responsibility of fund managers is equally prevalent – they state that there ‘will be an increased duty on fund managers to act in the best interests of investors’, and go on to refer to the Senior Managers & Certification Regime (“SM&CR”) as a complementary regulation and a suitable accountability framework that would help ensure this.

The concept of a ‘standard disclosure template’ is one very much aimed at increased transparency; the FCA propose that, in conjunction with MiFID II, which they believe will provide institutional investors with a ‘clear understanding of the costs and charges that they are incurring’, a ‘well-designed, standardized template’ to list out these costs and charges clearly, would certainly benefit the different stakeholders.

Finally, the idea to involve independent directors in fund governance – which has been successfully executed in other markets – is certainly a step in the right direction in ensuring that investors get better value for money, and increases the emphasis on transparency within the fund itself.

While the list of proposed reforms in the final report are not conclusive, and there will be continued consultation with market participants to fine tune these reforms, the FCA has delivered a few key messages via their report.

The regulators, led by the FCA, will force the asset management industry to change for the better. New paradigms of transparency, accountability and efficiency are being put in place, and the industry participants who embrace this change, adapt their business models to robust, superior, technology-driven models, are those who will not only survive, but thrive.

In spite of pressure from the industry, and the looming shadow of Brexit, the FCA has pushed its agenda of ‘positive change’ through, and is hoping to catalyse the industry into adopting these new ‘gold’ standards. The general sentiment is that this change was inevitable, and with the release of the final report, the FCA has officially kicked things off.

 

Arzish Baaquie is Senior Content Strategist at Smartkarma

 

 

 

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