New FCA Rules On ‘Closet Trackers’ Underscore Need for Quality Data

New rules unveiled by the Financial Conduct Authority (FCA) mean that asset managers in the UK will be required to provide investors with more information on the performance of their funds. The rules have been introduced by the FCA over concerns that investors may be paying too much for ‘closet trackers’: funds that closely track an index but still attract the high fees associated with active management.

Following introduction of the rules, asset managers will need to be more transparent around several key areas relating to such funds; including the fund’s objectives and which benchmarks are used to measure the fund.

Under the rules, which will be introduced in May for new funds and August for existing funds, asset managers will need to reveal why they selected certain benchmarks for their funds, and will also be required to ensure that benchmarks are referenced consistently across all documentation. In addition, asset managers will be required to provide evidence of funds’ past performance against their benchmarks and provide transparency around performance fees.

The measures are hoped to make it easier for investors to select funds that best meet their investment objectives while encouraging fair pricing.

For asset managers in the UK, these new rules once again highlight the need for high-quality, detailed and consistent benchmark and reference data sourcing and management. To provide the transparency and consistency of data required by the FCA, firms will need to source benchmark data from multiple sources, quality-assure the data and then distribute it to operational and reporting systems in a consistent format.

For in-house data management teams already stretched by managing a benchmarks data landscape that’s more complex than ever, these new rules will provide cause for concern. Data management teams will need to apply scare resources to ensure the data required by the FCA can be sourced and processed in time for when the rules come into effect. With just three months to go before the first deadline, this will be a challenge.

This is where managed data services such as those provided by RIMES come into their own. By working with managed service providers, firms can bypass the complexities of data sourcing and management, allowing them to focus on core business tasks. What’s more, by leveraging the economies of scale that come with managed services, firms can meet their data management objectives as a lower cost of ownership than with in-house alternatives.

The FCA’s new rules require a rapid response from data management teams. Those that partner with managed services providers will, we believe, find it easiest to accommodate the new rules in time and at the best cost points.

RIMES Managed Data Service is a proven data operating platform that helps firms of all sizes and in all regions align their data consumption closely with business needs. Contact us to learn more.

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