Asset Management Market Study (AMMS)
Final report, June 2017
The final report of the AMMS is extensive, and will have been pored over in some detail by those in the sector. It emphasises the importance of the asset management industry in managing some £6.9 trillion in assets. The FCA's own summary of its findings indicates:
- weak price competition in a number of areas, which has a material impact on investors through the charges they pay for asset management services;
- no clear relationship between charges and the performance of retail active funds;
- sustained, high profits in the asset management industry over a number of years;
- lack of clarity as to fund objectives and inappropriate measure of performance;
- heavy reliance by some investors on the advice of consultants, and concerns as to the way in which the investment consultant market operates; and
- retail investors do not appear to benefit from economies of scale when pooling their investments.
Some of the specific remedies proposed are summarised below, but in addition, the AMMS final report refers to continued support for consistent disclosure of costs and charges. The FCA also indicated that it would chair a working group to consider how to make objectives clearer and more useful to investors. It further announced its intention to recommend that HM Treasury consult on bringing investment consultants within the regulatory perimeter.
Consultation on implementing asset management market study remedies and changes to Handbook
Consultation Paper 17/18, June 2017
The FCA's consultation builds on the findings of the AMMS, and contains proposals on three specific areas: governance; moving investors into better value share classes (and the circumstances in which the Authorised Fund Manager (AFM) could undertake a mandatory conversion); and risk-free box profits (where the AFM makes a risk-free profit on holding fund units sold in a "manager's box" before selling them at a higher price within the same valuation point). The FCA also launched a discussion as to whether it should consider introducing an end to the payment of trail commission, and whether remedies outlined in the Consultation Paper should be applied to other retail investment products.
The most interesting of these proposals is arguably governance, in relation to which the FCA focused on the boards of AFMs. The FCA proposed that the boards of AFMs should be required to assess (and document) annually whether value for money had been provided to fund investors. The FCA set out various points that the value for money assessment would need to include. Further, the FCA proposed that AFMs should be required to appoint a minimum number of independent directors. The Consultation Paper also indicated that the FCA would consult, as part of the Senior Managers and Certification Regimes (SMCR), on the introduction of a prescribed responsibility on the chair of the AFM board to act in the best interests of investors, but such prescribed responsibility does not appear in the list of those the FCA proposes as part of the extended SMCR (as to which see above).
The FCA's actions in relation to asset management since the publication of the AMMS final report, including first use of its competition enforcement powers
In September, the FCA announced a final decision to make a market investigation reference on investment consultancy and fiduciary management services to the Competition and Markets Authority, and to reject proposed Undertakings in Lieu.
The FCA went on to publish the Investment Platforms Markets Study Terms of Reference (MS17/1.1).
Finally, at the end of November, the FCA announced that it had provided a statement of objections to four asset management firms, alleging breaches of competition law as a result of sharing information relating to the prices they intended to pay for shares in forthcoming IPOs. As the FCA put it, the bilateral sharing of information allowed firms to know the other’s plans during the IPO or placing process "when they should have been competing for shares". It does not seem to be alleged that the firms actually agreed to bid at specific prices. Given the fact that buy side market practice in this area has been varied, and in light of the economic dynamics of the current IPO market, it will be interesting to observe how the case proceeds.
This marks the FCA's first use of its competition enforcement powers. The statement of objections procedure is drawn from the Competition and Markets Authority's enforcement procedure, and the statement of objections itself is broadly equivalent to a combined warning notice and investigation report under the FSMA procedure.