FCA speaks on asset management

Andrew Bailey has given a regulatory perspective on asset management. His speech considered:

  • market-wide risks: he looked at the growth in the asset management sector and particularly the increase in proportionate growth of the asset management sector over others.
  • open-ended funds: he considered the risks of funds offering daily redemption in illiquid assets which also cannot be valued daily
  • exchange-traded funds: this is another growth sector and FCA knows relatively little about the capacity and willingness of authorised participants to execute their function under stressed conditions. There is a risk of unexpectedly large discounts for existing investors, or temporary suspensions of dealings.
  • current challenges in asset management in the UK:  he discussed the key concerns from Brexit, which he summarised as delegation of activity, passporting of funds and segregated account arrangements for EU clients. As yet, we do not know whether or how these benefits can be preserved. But he pointed our that asset management supply chains are international, and that delegation is a well established global norm, underpinned by international cooperation that is not dependent on EU membership. In many cases, there is no need to disrupt or restrict what works well. He then said that, absent Brexit, his major concern is the ageing population mixed with low interest rates and increased costs of old-age care. He noted also the switch from defined benefit to defined contribution pension schemes and the need for industry to provide products and the regulator to establish conditions in which consumers can make the choices they now need to
  • developments in regulation: finally, he turned to a discussion of the asset management market study and the remedies required. He heralded the introduction of greater transparency on costs and charges introduced by various EU measures, and noted the need to provide similar transparency to institutional investors. But he also noted the problems that MiFID 2 and PRIIPs requirements could bring, in terms of lacking usefulness and practical information, while providing disclosure that is literally accurate. He discussed also the issues in the investment consulting market which have been referred to the CMA. Finally, he looked at the challenges of keeping up with the uses and risks of advances in technology.