February 4, 2019 / 10:28 AM / 10 months ago

UK watchdog tightens requirements on asset managers

LONDON (Reuters) - Managers of four trillion pounds in assets must clearly spell out to customers from May how they measure performance of money invested in their funds, Britain’s Financial Conduct Authority said on Monday.

FILE PHOTO: The Canary Wharf financial district is seen in east London November 12, 2014. REUTERS/Suzanne Plunkett (BRITAIN - Tags: BUSINESS)

The FCA published a set of new rules for asset managers, saying its review of the market found “weak price competition” leading to lower returns for savers.

It was the second batch of remedies or rule changes following publication of its market study into asset management in November 2015 to improve “value for money” for investors in funds that have been accused of being opaque regarding fees and charges.

The latest batch requires fund managers to clarify how performance of the fund is measured, and show that where a performance fee is specified, it must be calculated based on the scheme’s performance after the deduction of all other fees.

“Today’s remedies build on those we’ve already introduced and will make it easier for investors to choose the best fund for them and help them achieve their investment objectives,” said Christopher Woolard, the FCA’s executive director for strategy and competition.

The Investment Association (IA), which represents funds in Britain, said it was committed to increasing transparency and promoting clearer language across the sector.

“Our customers should be able to easily compare fund information, so that they can choose investment products best suited to their needs,” said IA Chief Executive Chris Cummings.

The rule changes are broadly in line with what the FCA had proposed.

The remedies will also help root out so-called closet trackers or funds that charge higher fees for using their expertise to pick stocks, but in practice largely track a market benchmark such as the FTSE 100 for UK blue chips.

“Today’s final rules provide a little more meat on the bones around the use of benchmarks. It’s now down to firms to work out how that builds into their documentation and crucially their complex work on value assessments,” said Andrew Strange, a risk and regulation director at consultants PwC.

The FCA said it will say later this year if the remedies should be applied to unit-linked and “with-profits” products.

The IA said it would publish guidance later this month on “consistent terminology” in communications from fund managers to customers.

Reporting by Huw Jones; editing by Keith Weir and Jason Neely

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