The Financial Conduct Authority ("FCA") has launched a market study into the asset management sector to assess whether competition is working effectively as far as institutional and retail investors are concerned.
Background
The FCA estimates that, in the UK there are approximately £6.6 trillion of assets under management, with institutional investors (including pension funds) representing around 80% of assets under management and retail investors accounting for just over 19%.
If competition in this sector is not working effectively and delivering value, then consumers may be affected directly through their retail investments or pension funds or indirectly through insurance premiums. The size of the sector also means that even small improvements to the effectiveness of competition could produce significant benefits for consumers.
The Market Study
The FCA is carrying out the market study using its powers under FSMA (and not its concurrent competition powers). The market study follows on from the issues identified in the wholesale sector competition review which suggested that competition in the 'asset management value chain' may not be working effectively.
The FCA has identified three main areas which will be the starting point for the market study, namely:-
- How do asset managers compete to deliver value?
- Are asset managers willing and able to control costs and quality along the value chain?
- How do investment consultants affect competition for institutional asset management?
In each of these areas, the FCA will also be considering whether and to what extent barriers to entry or innovation in the sector are impacting on value and investor benefit.
The market study covers institutional and retail investors, and will focus on the following areas of the value chain:-
- advice and distribution (focussing on investment consultants and platforms);
- asset management products and services in the UK, together with the providers of those products/services; and
- ancillary services and third party providers (such as custody banking, fund administration and risk management services).
What next?
Interested parties have until 18 December 2015 to submit their comments on the market study to the FCA. Market participants can also expect to receive requests from the FCA in the near future for information and data on the areas described above. The FCA expects to issue an interim report on the market study in summer 2016, with the final report expected in early 2017.
If the FCA concludes in its final report that competition is not working effectively, then it may intervene and impose remedies (whether on a market wide or specific firm basis) to promote effective competition. It is worth stressing that whilst the market study is assessing the sector, if the FCA considers that specific firms are infringing competition law then those firms may well be pursued under a separate investigation.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
