The UK Financial Conduct Authority (FCA) has unveiled a package of measures – including board member independence requirements - as part of an initiative designed to ensure fund managers compete on the value they deliver and act in the interests of retail investors.
The FCA is responding to concerns outlined in a June 2017 final report on a study of the asset management industry.
Christopher Woolard, executive director of strategy and competition at the FCA, says in a statement: ‘It is important the asset management industry, which looks after the savings of millions of investors, is working as well as possible. But our market study found evidence of weak price competition in a number of areas.’
In part, the regulator has issued final rules and guidance that include:
- Requiring fund managers to make an annual assessment of value, as part of their duty to act in the best interests of the investors in their funds
- Requiring fund managers to appoint a minimum of two independent directors to their boards
- Introducing a new responsibility under the FCA’s senior managers and certification regime intended to ‘bring individual focus and accountability,’ officials write
- Technical changes to: (i) ‘improve fairness around the way in which fund managers profit from investors buying and selling their funds;’ and (ii) ‘facilitate the movement of investors into cheaper share classes.’
FCA officials write that these changes will ‘deliver better protection for all investors, both those who are actively engaged with their investments and those who don’t follow their investments closely.’
Firms have 18 months to implement the rules on assessment of value and the appointment of independent directors, and 12 months to comply with the rules on the way fund managers profit from investors buying and selling their funds.
Proposals for greater transparency
In addition, the FCA launched a new consultation on ways to promote greater transparency about funds’ offerings – the idea being to help investors make good decisions about which funds to choose. The consultation includes proposals on:
- How fund objectives can be expressed more clearly and be more useful to investors
- Making it clearer when funds are limited in how far their holdings can differ from the weightings of a benchmark index
- Making sure that, if funds use benchmarks, they disclose and explain this.
The FCA also published a paper on behavioral research looking at how different ways of presenting information about charges affect investors’ decisions and their understanding and awareness of charges.