Britain’s markets watchdog announced radical changes to the country’s £7 trillion ($9 trillion) asset management industry on Wednesday, seeking to improve transparency and value for money for customers.
The Financial Conduct Authority (FCA) said it would strengthen the duty of fund managers to act in the best interests of investors and, as in the US, require them to appoint independent directors to their boards.
Fund managers will also come under the FCA’s individual accountability regime, making it easier to punish them when rules are not followed.
The reforms in a 112-page report follow an initial study last November that found a lack of competition and high profits for the industry. The FCA will now consult on how best to implement its plans.
“This is really a major piece of work. It is a major step forward,” FCA Chief Executive Andrew Bailey told reporters.
“We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them.”
The FCA said it would also launch a study into investment platforms, which offer a range of funds online. That sent shares in platform provider Hargreaves Lansdown down more than 2 percent to the bottom of the UK’s benchmark FTSE 100 index.
The watchdog also recommended that the government’s work and pensions department remove barriers to the pooling of pension schemes, which could cut investment costs for the schemes.
The combination of measures taken by the FCA will drive down fees for investors, Bailey said.
The changes will be introduced in stages, which the industry will welcome as it faces other reforms, such as new EU rules, and the unknown impact of Britain leaving the bloc on a sector with ties that crisscross Europe.
On fees, the FCA said it would broaden new EU fee disclosure requirements that come into force in January. The EU rules require intermediaries to publish a single, all-in fee, and the watchdog said this practice would be a requirement across all the sector.
Bailey said the FCA was not “gold plating” EU rules, but making them consistent across the funds sector.
The regulator stopped short of an immediate referral to Britain’s competition authority of the market for institutional advice but is expected to do so later in the year after a public consultation launched on Wednesday.
It did, however, recommend the government consider bringing investment consultants under the remit of the FCA.
The FCA’s November consultation paper raised hackles in the industry after it criticized asset managers for making hefty profits, and the watchdog said its final report confirmed those findings.
“This found that price competition is weak in a number of areas of the industry,” the FCA said.
“Despite a large number of firms operating in the market, the FCA’s analysis found evidence of sustained, high profits over a number of years.”
The FCA said it also found investors are not always clear what the objectives of funds are, and fund performance is not always reported against an appropriate benchmark.

Source: Arab News