RegulationOct 18 2017

FCA's Bailey pins fund fee pressure to market shake-up

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FCA's Bailey pins fund fee pressure to market shake-up

Financial Conduct Authority (FCA) chief executive Andrew Bailey has said the regulator will focus on further pushing down fees in fund management by making it easier for new firms to enter the asset management market, a strategy he said will also help the industry survive Brexit. 

Speaking at the Investment Association's annual dinner at Mansion House last night (17 October), Mr Bailey took a positive tone on the future of the UK's financial services sector, but indicated the onus is on industry to adapt to survive.

“The challenges are all around us, whether it is Brexit, long-term saving and retirement provision or adjusting to the pace of innovation.  

"We can handle these challenges, I firmly believe that, but to do so we need to be very well anchored to the principles of open markets, strong competition and a willingness to embrace change.”

Fund management fees have been on the FCA's radar for some time and in the summer the regulator published its report into a far reaching study of the asset management industry.

The FCA stuck with plans to oblige fund firms to introduce all-in fees as part of a package of measures unveiled by the watchdog, designed to ensure retail investors get value for money.

This will also require firms to introduce two independent board directors, do more to ensure benchmark presentation is accurate, and pass on economies of scale more effectively.

Mr Bailey said the appointment of independent directors to fund boards will increase the chances of investors getting value for money from fund houses, but that a deeper change can be achieved if competition increases.

The FCA’s role in increasing competition is to “innovate”, he said.

He described the recent launch of the FCA’s nursery  for new entrants into the fund management space as an example of this innovation helping to create increased competition.

He said the hub "is not about reducing regulation; it is about promoting a vibrant, well-functioning industry that helps to provide for the critical long-term savings”.

The impact of Brexit on the UK's financial services sector is a key concern.

Mr Bailey said the current arrangements by which funds domiciled in Luxembourg or Dublin are managed in the UK are effective, and that he and his colleague in Luxembourg are in agreement that the current arrangements work from a regulatory point of view, and, in his opinion, the UK does not need to be a member of the EU for those arrangements to be allowed to continue.

He added it would be important to recognise the principles for open financial markets which have long been recognised in goods trade, namely long standing European principle of Most Favoured Nation.

This means not restricting free trade to regional trade blocs and not discriminating in the trade terms offered to other countries.  

"To make that work for financial services like investment management requires regulation in the public interest which delivers equivalent outcomes and protection and embodies close co-operation and information exchange between the regulatory authorities," he said.

"We have this now with EU partners, including through the common regulatory framework that has been put in place, but we also have it with other countries.  

"We are ready to roll our sleeves up and continue to make open markets work effectively.”

 

David.Thorpe@ft.com