US and UK financial regulation faces shake-up

US looks to streamline while UK wants better treatment of investors 

The financial regulatory environment in both the US and the UK is to face major change ‒ for different reasons.

After Donald Trump’s victory in the presidential election, the US investment industry is preparing for a regulatory overhaul that could end some of the most unpopular rules introduced since the financial crisis.

Investors expect the new president to take an axe to investment regulation when he takes office in January. In turn, the move is expected to boost profits at asset managers. ‘I believe a Trump administration will look to streamline some financial regulation,’ says Peter Bain, chief executive of Old Mutual Asset Management, the New York-listed fund house.

Since the financial crisis, regulators around the world have introduced many measures aimed at protecting consumers and making markets safer.

During the election campaign, Trump promised to stop all new financial regulations and repeal the extensive legislative package that is Dodd-Frank. The 2,300-page act was introduced in the wake of the financial crisis and aimed to make banks and asset managers more resilient.

Trump has previously labeled the package a ‘very negative force’, blaming it for stopping banks from ‘loaning money to people who need it.’

He is expected to face obstacles in getting his repeal plan through Congress, but Republicans should be supportive, having labeled the act ‘Democrats’ legislative Godzilla’ and blaming it for ‘crushing small and community banks and other lenders.’

In the UK, a shake-up of the fund management industry has been proposed by the financial regulator to confront what it sees as serious failings in the sector’s treatment of investors.

The Financial Conduct Authority (FCA) wants investment companies to overhaul their charging structures, saying investors are getting poor value for money in actively managed funds. Presenting the findings of an investigation into the industry, the regulator proposes that investment managers should introduce an all-in fee so that investors in funds can easily compare charges.

The regulator also wants to strengthen the use of benchmarks to assess fund management performance. The FCA argues that fund objectives are not always clear and that performance is not always reported against an appropriate benchmark; it therefore proposes that fund managers provide tools for investors to identify persistent underperformance.

‘We want to see greater transparency so that investors can be clear about what they are paying and the impact charges have on their returns,’ says Andrew Bailey, chief executive of the UK regulator.

The FCA adds that the investment sector had ‘enjoyed sustained, high profits over a number of years with significant price clustering.’

The regulator is further consulting on whether to refer the investment consulting market, which heavily influences how pension funds invest, to the Competition and Markets Authority. 

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