Earlier this month, the UK’s Financial Conduct Authority (FCA) launched a new consultation into the transparency of fund objectives. The consultation follows the FCA’s Asset Management Market Study, which investigated the transparency of fund objectives, the use of benchmarks, and performance fees.
On the conclusion of the consultation, the FCA intends to issue guidance on how fund managers can make their objectives clearer for clients. This will include information on when a manager needs to disclose that a fund’s strategy is constrained relative to a benchmark, and the disclosure of non-financial objectives (e.g. environmental measures). Additionally, where funds use benchmarks, the FCA is proposing that these benchmarks must be clearly explained to clients and set against fund past-performance. Finally, the FCA plans to look into performance fees to ensure they are fair to investors and transparent.
In a sector where fund managers are already having to respond to the challenges of new regulations, such as the EU Benchmarks Regulation (BMR), the Market Abuse Regulation (MAR) and the Markets in Financial Instruments Directive (MiFID II), the FCA’s consultation may raise further alarm bells for firms. In RIMES’ opinion, it’s likely that the FCA’s investigations will lead to increased reporting requirements as firms are required to open their fund objectives and pricing strategies to clients. Moreover, any requirements around price transparency will require asset managers dig into their operations to understand their cost structures and report on them accurately.
In this environment, good data governance has never been more important. If asset managers are to provide detailed information on their benchmarks and the relative performance of their funds, they need to ensure they are on-boarding the highest quality benchmarks data, and that the data can be integrated into client-facing reports seamlessly. It is also critical that firms can gain a clear understanding of the cost of their benchmarks universe, so they can accurately and transparently calculate price points for customers. Finally, there is a possibility that price transparency will lead to increased price competition in the sector. In this event, asset managers need to find a way to manage costs more effectively, and this will include those associated with data ownership and management.
At RIMES, we believe the trend towards fund objective and price transparency increasingly demands a more flexible, clear and low-cost approach to data management; one that prioritises data quality and the ease of data integration. Managed data services, such as those offered by RIMES, are rapidly emerging as the best method for achieving these aims. Managed data platforms enable firms to meet any increase in reporting requirements that result from regulation or increased client expectations. Additionally, managed data services remove uncertainty around data costs and, through economies of scale, lower the total cost of data management and governance.
The FCA in the UK is charting a course that will, in RIMES’ opinion, eventually be reflected worldwide. All fund managers will eventually be required to open their fees and fund objectives and methodologies, to customers and regulators alike. Firms that start readying their data management systems now will be best placed to adapt.
A wide range of regulatory topics will be discussed at RIMES’ upcoming EMEA Client Conference, which will take place in London on May 2. To register, email firstname.lastname@example.org.
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