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REGULATION/LEGISLATION

U.K. financial authority has its eye on manager cost transparency efforts

The U.K.'s financial regulator is prepared to intervene in the money management industry should industry-led attempts to deliver greater cost transparency not measure up.

The Financial Conduct Authority published in November its interim report on its asset management study. In the report it identified a number of areas where the FCA thinks competition is not working effectively.

Speaking Thursday at the Pensions and Lifetime Savings Associations annual investment conference in Edinburgh, Christopher Woolard, director of strategy and competition at the FCA, focused on four themes from the report, one of which was the transparency of costs and charges, “where we found that many institutional investors are struggling to assess whether they are receiving value for money.”

Mr. Woolard said the FCA “heard that investors often struggled to get information on transaction charges — both implicit and explicit charges. We also heard that information about charges is often unclear for those investing through more complex fund structures such as hedge funds and private equity funds.”

He said that lack of transparency “is likely to contribute to asset managers being less effective at controlling complex costs,” and limits institutional investors' ability to drive competition and get value for money.

“So we clearly see a need to improve the way that information is provided and made available to institutional investors. We also recognize there are industry-led attempts to develop greater cost transparency and support the industry in continuing to work together with investor organizations to develop a standardized template to disclose asset management-related fees and charges,” said Mr. Woolard.

The FCA asked for feedback on whether industry measures go far enough, “and to be frank, we have heard mixed views on whether these are preferable to more regulatory improvements. If we find the industry-led initiatives are not likely to be successful or sufficiently comprehensive, we will have to consider the need for further regulatory intervention,” he said.

Mr. Woolard also referred to the report's focus on the pooling of smaller pension funds, where the FCA is “concerned that this market fragmentation means that a lot of schemes do not enjoy the benefits of scale that they might otherwise do. In particular, that they lack bargaining power when negotiating with asset managers.” The transparency around outsourced CIO fees and performance is another area of concern, as is the regulation of advice that is given to trustees by investment consultants, he said.

The FCA expects to publish its final report in the summer.