The United Kingdom’s Financial Conduct Authority (FCA) released its final report on its asset management market study, emphasising the importance of competition in the sector. Finding that price competition is weak in a number of areas, the FCA also noted that fund objectives were not always clear to investors and that fund performance was not always reported against an appropriate benchmark.
In particular, the FCA examined the barriers to competition in relation to product development and innovation in the asset management market. The FCA found that innovative developments in investment products and strategies were more likely to have an ‘evolutionary’, rather than ‘revolutionary’, effect on competition in the medium to long term. The FCA noted that they did not see innovation in the ways active management firms charge for their services.
The FCA also found limited evidence of significant structural or regulatory barriers to entry in the asset management market however respondents to the study cited the volume and complexity of regulation, data protection rules, financial promotion rules and the potential ramifications of EU withdrawal as barriers to innovation. This suggests a disconnect between regulator and industry, while also highlighting some of the potential challenges that fintech entrants face in relation to disruption of the asset management sector.
The FCA has developed a package of remedies, with a three pronged approach focusing on providing protection for investors ill placed to find better value for money, driving competitive pressures on asset managers and improving the effectiveness of intermediaries.