Regulation  

Fund ratings providers in FCA’s sights

 

It is “a matter of time” before the regulator turns its attention to fund rating providers, according to Rory Maguire, managing director of ratings agency Fundhouse.

Mr Maguire has been lobbying the regulator and other industry bodies about the model used by many fund ratings agencies, where the fund managers themselves pay the ratings providers.

In a video interview with FTAdviser, he suggested the Investment Association (IA) has a “vested interest in continuing to pay for ratings”, but that the FCA had shown an interest in the model of fund ratings services as part of its wider thematic review into the asset management industry.

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“To have a model where the rater is paid by the ratee, I think is something that kind of works for them [the IA],” he said.

“We don’t think that they, as an industry body, are going to want to adopt our model more formally.”

He added: “The keys to that door are the ones that are probably held by the regulator rather than the industry body itself.”

The IA declined to comment.

In the past, the FCA highlighted the model used by many fund raters.

It has stated: “Some ratings agents have a conflict of interest as asset management firms pay them a fee to use ratings in marketing material and to access other services.” 

Mr Maguire pointed out that Fundhouse remains the only ratings agency to come under FCA regulation through Project Innovate.

He also discussed why he believes valuations are the main challenge faced by investors in the current environment.

In particular, he warned investors about “safe havens”, such as bonds and bond proxies, which “historically have been areas where investors have looked to seek protection from downside”.

“Our worry for investors is that cash net is full of quite big holes at the moment and that there’s quite a lot of downside perhaps priced into those assets that historically should have offered some protection,” he noted.

eleanor.duncan@ft.com