The FCA on 28 February 2019 issued supervisory publications concerning the review of disclosure of costs by asset managers and retail intermediaries to retail customers. The FCA has warned that firms should review their costs and charges disclosures as a matter of priority, and expects to see improvements in the coming weeks and months.
The “review on disclosure of costs by asset managers” was published. This focused on firms that manufacture products for onward sale to retail consumers. The FCA found:
- while most firms in its review calculated transaction costs according to the relevant rules, there are problems with the way some asset managers calculate transaction costs, and how prominently and clearly they disclose them
- asset managers generally do not disclose all associated costs and charges, and these are not sufficiently clear to the end investor
- asset managers may be communicating in an unfair, unclear or misleading way to their customers.
The “MiFID II costs and charges disclosures review findings” were published. These focused on retail intermediaries (wealth managers, direct-to-consumer platforms, advisory firms). The FCA found:
- most firms knew about their obligations for disclosing costs and charges, but interpreted the rules differently
- overall, the industry has been slow to comply with the relevant rules
- the FCA provided examples of good practice (eg training and technological innovation) and areas for improvement (eg inconsistency in disclosures between different marketing materials, and at different stages of the customer journey)
- the FCA acknowledged that there were contradictory or conflicting disclosure rules (as between MiFID II, the PRIIPs Regulation and the UCITS Directive) and noted that firms that produce or distribute a UCITS or a PRIIP can publish costs and charges information beyond that which his contained in the KIID or KID, subject to certain conditions.
The FCA also published:
- PRIIPs Feedback Statement (FS19/1): This Feedback Statement summarises responses received following the FCA’s Call for Input. The FCA has “significant concerns” about the uncertainty of scope of products falling under PRIIPs and potentially conflicting requirements. It has indicated that it will work with the European Commission and European supervisory authorities to “influence” the full review of PRIIPs regulation.
- Consultation on costs and charges disclosure (CP19/10): a consultation setting out proposed rules requiring pension scheme governance bodies to disclose their costs and charges to scheme members. The deadline for feedback is 28 May 2019.
The FCA has indicated that:
- all firms should review their own costs and charges disclosures to ensure they are satisfying all relevant requirements
- firms should, in particular, disclose all “transaction” and “incidental” costs and charges
- the FCA has warned that further investigative action may be required for those firms that do not show improvement in their costs and charges disclosures.
The FCA also indicated specific improvements it expects to see in relation to asset managers’ compliance with costs and charges disclosure obligations under various regulations (see “Next steps” section in its review of disclosure of costs by asset managers). It has again indicated that there could be more detailed investigations into specific firms, individuals and practices.
This continues to be a hot topic in the industry and one that will no doubt be taken very seriously by asset managers. The FCA has issued a warning that further action may be required if “we do not see improvement in firms’ costs and charges disclosures”, including “detailed investigations into specific firms, individuals or practices”. It has indicated that it has already asked specific firms to improve their disclosures.
The scrutiny by the FCA of funds’ costs and charges continues, following the Asset Management Market Study findings that weak price competition in the asset management sector was partly a result of ineffective disclosure of costs and charges. The same issue was also the subject of public scrutiny following MiFID requirements that took effect in January 2018, which had the effect of fund costs being reported higher than the stated OCF, showing the variability across the market in terms of the level of transaction costs.
Whilst the FCA is focused on the regulatory aspects, it is important that managers (as part of any internal review) also consider steps that can be taken to prepare for any parallel proceedings arising out of the same issues, such as litigation (including forms of collective redress) and separate investor complaints.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.