UK Financial Conduct Authority Publishes Final Asset Management Market Study Report

The Financial Conduct Authority has published the final report of the Asset Management Market Study it launched in November 2015. The object of the AMMS was to investigate three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. Furthermore, the FCA wanted to look at whether there are any barriers to innovation that prevent investors from obtaining better results. The FCA published an interim AMMS report in November 2016 which set out the FCA's provisional assessment of the way competition works for asset management services, the consequences for investors and the FCA's proposed remedies to tackle the issues.

The final AMMS report confirms the FCA's interim findings and proposes a package of remedies. The FCA has divided the remedies into three buckets: (i) remedies on which it has published a consultation alongside the final report; (ii) final remedies; and (iii) remedies on which it intends to consult later.

The consultation paper (first bucket) sets out proposals to:

• strengthen the duty on fund managers to act in the best interests of investors: the FCA intends to clarify its expectations about value for money, increase accountability through the Senior Manager & Certification Regimes and introduce a minimum level of independence in governance structures;
• require fund managers to return any risk-free box profits to the fund and disclose box management practices to investors;
• introduce a phased-in sunset clause for trail commissions; and
• reject the undertakings provided by the three largest investment consultants in lieu of the reference to the Competition and Markets Authority to further investigate the investment consultancy services. The FCA intends to make a final decision on this issue in September 2017.

Responses to the proposal to make a reference to the CMA are due by July 26, 2017. Responses to the remainder of the proposals should be submitted by September 27, 2017.

The final remedies (second category) that the FCA intends to put into motion are:

• recommending that both industry and investor representatives agree a standardized template of costs and charges to ensure the consistent and standardized disclosure of costs and charges to institutional investors;
• recommending that the Department for Work and Pensions continue to review and, where possible, remove barriers to pension scheme consolidation to assist those schemes wishing to benefit from economies of scale;
• recommending that, subject to the outcome of the provisional market investigation reference to the CMA, investment consultants are brought into the U.K. regulatory perimeter; and
• launching a market study into investment platforms to assess how competition works in that market.

The remedies on which the FCA has provided its initial views and on which it intends to consult at a later stage (third bucket) are:

• establishing a working group that will consider how to make objectives clearer and more useful for investors (the FCA notes that it may consider rule changes at a later stage);
• requiring managers to be clear about why (or why not) a benchmark has been used and requiring that their use of benchmarks is consistent across marketing materials; and
• proposals to clarify that where managers present past performance they must do so against the most ambitious target held out to investors.

View the AMMS Report.

View the consultation paper.

View Annex 1: additional feedback.

View Annex 2: fund merger and closure analysis.

View Annex 3: segregated mandate pricing analysis.

View Annex 4: assessing the relationship between the price and performance of retail equity funds in the U.K.

View Annex 5: assessment of third party data sets.

View the interim AMMS report.