FCA announces major overhaul of AM industry

Britain’s Financial Conduct Authority (FCA) announced today it is to press ahead with a series of new governance rules affecting fund managers, in a move that the regulator claims will “improve competition in the asset management industry.”

The new regulations will require asset management companies to appoint a minimum of two independent directors to their board. An implementation period, at first mooted as 12 months, has been extended to 18 months.

The measures, which the FCA published today in a report into the asset management sector, were developed in consultation with the industry. The UK regulatory body is moving the industry closer to the American system, where the majority of directors within each firm are independent.

Benefits of independent scrutiny

The FCA said in its report: “We think the benefits of independent scrutiny should be enjoyed by all investors, irrespective of the size of the business of the AFM (authorised fund manager) running the fund they have invested in, and irrespective of how long the AFM has been operating.”

The FCA sets out the changes as being “proportionate to the benefits we expect independent directors will bring to the running of funds.”

The FCA continued: “We believe that these costs are justified even in the early years of start-up AFMs, as the challenge independent directors bring is particularly important in a firm’s formative years when its strategy and culture are set.”

Kevin Doran, chief investment officer at AJ Bell, commented on the changes, saying: “The asset management industry is ripe for change. Investors need better choices, better value and better communication from fund providers and so we support wholeheartedly the FCA’s drive to deliver better information and value to investors.

“Excessive charges”

“For far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges.

“The occasional paper on behavioural remedies for improving consumer understanding and awareness of charges is particularly interesting. Point of sale disclosure is an area we have done our own behavioural research in and it is clear that huge improvements can be made in this area to help consumers. We look forward to engaging with the regulator on this.”

Andy Agathangelou, founding chair of the Transparency Task Force commented: “What I like most about the FCA’s announcements today are that there are no real surprises. The FCA have done a good job, not only in terms of the remedies but also in the way they have engaged extensively with industry throughout the entire process. They have signalled all along what their general direction of travel was likely to be and the net result is that they have managed expectations very well – few observers will be very surprised by what has been announced today, and that’s good for the sector as a whole.”

The FCA’s full report can be read here.

Christopher Copper-Ind
Christopher Copper-Ind is Editor of International Investment.

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