Martin Wheatley, chief executive of the Financial Conduct Authority, has today called for greater transparency to boost the reputation of the asset management sector and a "frank and open discussion" on how and where dealing commission is spent.
The FCA is concerned about the 'bundling' of charges together, particularly where 'research' costs are included in commissions. It will be consulting with asset managers to see what changes need to be made to the existing regulation, which have been in place since 2006.
The FCA says a specific concern is that some asset managers are pushing the definition of 'research' by using client commissions to cover non eligible costs and services. It says that the IMA supports its review along with industry representatives that "certain practices need to change."
Martin Wheatley said: "We need to be confident that managers are putting their clients' value for money, good returns, and transparency at the heart of how they do business. Then the discussion is about how best to get there – is evolution enough or do we collectively need to be more revolutionary?"
He confirmed that the FCA would be working with the investment management sector to develop a "proportionate regulatory solution". The roadmap for change will include:
· Working with asset managers in the UK and policy makers in Europe to find a balanced regulatory solution;
· Launching a consultation paper in November to clarify rules on research, including guidance around corporate access; and
· A thematic review that follows up on the FCA's earlier work looking at conflicts of interest within asset management.
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The FCA's concerns about transparency are shared by industry practitioners and representatives, said Mr Wheatley. Speaking in response to Martin Wheatley's announcement of a review of the use of dealing commissions in the purchase of research, IMA chief executive Daniel Godfrey said: "The IMA has been conducting a significant review of this market for some months and we expect to be able to report our conclusions early in the New Year. Our clear objective is to ensure we deliver the greatest possible value for money, transparency and accountability to our customers and we will explore all possible avenues to make sure we do just that."
Mr Wheatley said the asset management sector now played a pivotal role in the UK economy. The sector has gone from managing funds equivalent to 1% of GDP in 1960 to 40% of GDP in 2010 and UK fund managers were responsible for a record £5.4 trillion in funds at the end of 2012, up 6.5% on the previous year. But he added that the UK differed from many other jurisdictions because nearly 50% of clients in UK asset management are made of pension and insurance funds and this placed an extra responsibility on the sector to take care of the funds on behalf of clients who relied on the returns and to be completely transparent about costs and charges.
The FCA says its asset management conference, being held at the Excel Centre in East London, is an opportunity for the FCA to explain its strategic approach to regulation of the sector and discuss some of the key pieces of work it will be doing in the future. The asset management sector includes 2,100 authorised firms and employs more than 29,000 people across the UK.
During the day staff at the FCA will host breakout sessions on different aspects of its regulation of asset management. One of these will focus on anti-money laundering (AML) and anti-bribery and corruption (ABC) controls. Later this week the FCA will publish the findings of a review of 22 that shows good examples of risk management but also reveals common weaknesses.