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Regulation

FCA proposes regulating consultants, increasing transparency for managers

The U.K. Financial Conduct Authority wants the government to move investment consultants under its regulatory watch and remove barriers to consolidating pension funds, better governance and transparency for investors.

The financial watchdog published the final findings of its asset management market study Wednesday, announcing a set of proposals and remedies to address concerns raised in its interim report, which was published last year.

One focus for the FCA has been on investment consultants; it raised major concerns over conflicts of interest among firms. In response, three of the largest global investment consultants — Willis Towers Watson, Mercer and Aon Hewitt — submitted a package of measures to the FCA in February. The package of "undertakings in lieu" outlined proposals to promote competitiveness and transparency in the investment consulting and outsourced CIO disciplines — one area of concern over conflicts of interest.

In its final report, the FCA said it proposes rejecting these undertakings in lieu and is seeking comment on this proposal. The watchdog also proposed in its interim report asking the Competition and Markets Authority to investigate investment consultants, and said in the report Wednesday it expects to make a final decision in September.

The FCA has also decided to go ahead with its proposal to recommend that the U.K. Treasury move investment consulting into its regulatory coverage, subject to the outcome of the proposed investigation by the Competition and Markets Authority, a move that was welcomed in reaction statements by consultants.

Elsewhere in the final report, the FCA said it wants to put competitive pressure on money managers, in part by supporting the "consistent and standardized disclosure of costs and charges to institutional investors."

It will also recommend that the Department for Work and Pensions remove barriers to the consolidation and pooling of U.K. pension funds. "This should help those schemes who wish to benefit from economies of scale that might be achieved by such consolidation," the report said.

The FCA will also chair a working group focusing on how to make the objectives of investment strategies more useful. It will also consult on how benchmarks are used and how performance is reported.

"We need a competitive (money management) sector, attracting investment into the United Kingdom, which also works well for the people who rely on it for their financial well-being," FCA CEO Andrew Bailey said in a statement accompanying the report. "We have listened carefully to the feedback we received in response to our report last November. We have put together a comprehensive package of reforms that will make competition work better and help both retail and institutional investors to make their money work well for them."

Some of the recommendations do not require consultation and are being implemented by the FCA. A consultation paper on rejecting the undertakings in lieu related to investment consultants and the FCA's latest report are available on the FCA's website.