09 February 2018

Financial Times: FCA’s Andrew Bailey: Why regulators have fund managers in their sights

Longer lives and retirements are positive developments but they present challenges to the financial services industry and those who regulate it. There is a greater need than ever for long-term savings and the income these generate for increasingly long retirements. Asset managers have a crucial role in meeting this challenge.

It was within this context that last year the Financial Conduct Authority undertook a significant study into the asset management market. FCA founds weak price competition in many areas, sustained high profits at companies, a lack of clarity over what funds are seeking to achieve and their performance, and fund boards that lack independence and do not fully consider whether the fund is achieving value for investors’ money. As a result, FCA is proposing major changes.

These reforms contribute to an already high volume of regulatory change for asset managers. With Mifid II, Priips, money market funds regulation and the senior managers regime there is an alphabet soup of initiatives, often bringing with them new requirements and short-term costs. For those in the industry, it must feel as if the regulatory eye has fallen squarely on them, with all the scrutiny and, at times, painful change that entails.

But it is because people’s financial health can depend on the investment choices available to them and the decisions they then take that makes the need to look at this sector clear. What’s more, the cumulative impact of these individual choices matters to all of us through the knock-on consequences for the wider economy.

As UK leave the EU, it is important UK shows investors the UK continues to be best in class. UK needs to demonstrate that UK has the investment skills and regulation needed to deliver sustainable returns to maintain its position as an international investment hub.

That means innovating. Firms that offer investment propositions to meet the challenge of the times we live in should flourish; those that rely on outdated practices such as complex, opaque charges should not. The reforms recently implemented or under consideration will help investors better understand what the fund they are buying aims to achieve, how much it costs and how it is performing. Hard-working, prudent investors who rely on the skill of asset managers will be better protected behind the scenes from FCA’s proposed governance rules designed to ensure funds are genuinely run in investors’ best interests.

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