FCA unveils scope of asset management probe

Regulator publishes terms of reference for sweeping study of whether industry players are delivering value

UK-based asset management firms will be under the microscope of the Financial Conduct Authority (FCA) for the next year or so, as the regulator attempts to pin down the state of competition and value within the sector.

As heralded in the FCA’s business plan for this year and next, the organisation will scrutinise industry players in the light of feedback it received last year to its wholesale sector competition review, which indicated that there may be competitive issues to address within the UK end of the asset management market.

On 18 November, the FCA confirmed that its terms of reference for the review will revolve around 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.

Those themes will be assessed in the context of whether the sector currently presents any barriers to technological advances or other innovations and, if so, whether those barriers are blocking the emergence of new business models that may help to benefit investors.

As reigning champion of Europe’s asset management landscape, the UK sector accounts for funds worth a collective £6.6 trillion. That includes £2.1 trillion of pension fund investments, £1.2 trillion in retail investment products and £0.4 trillion in public sector and charity investments.

A further £1 trillion is tied up in investment products, while the same sum resides in non-mainstream solutions – both of which encompass pensions-linked investments.

Responses to last year’s review of the wholesale sector indicated that the asset management market may have issues related to:

• the difficulty investors have with making sure they are getting value for money and monitoring their asset managers’ performance;
• the role of investment consultants, and the potential for conflicts of interest that may arise from the provision of advice and asset management services;
• incentives and capacity that asset managers have to control costs incurred on their investors’ behalf; and
• the bundling of ancillary services, and the quality of some of the services provided.

FCA director of strategy and competition Christopher Woolard said: “Asset managers provide an important economic function, bringing together those with money to invest and companies and governments that need capital.

“Given the significant role they play in the economy, it is essential that competition works effectively for these services.”

He added: “The UK is a world leader in asset management. Our market study aims to ensure that both retail and institutional investors can get value for money when purchasing these services – which we expect to further strengthen the UK’s position as a major centre for asset management.”

The FCA will publish interim results of its probe next summer, and a final report in early 2017.

Download a PDF of the full terms of reference.