Closet trackers - preparatory steps as publicity increases

Closet tracking is generating increasing publicity largely driven by lobbying groups and a claims industry looking for opportunities as the PPI revenue stream dwindles.

Earlier this month, following an announcement by the Financial Conduct Authority (FCA) in the Sunday Telegraph that £34m has been paid by asset managers who the FCA considered to have been engaged in so called “closet tracking”, this blog noted that the announcement appeared to provide an element of finality for the majority of the 84 funds that had been under review by the FCA. Others in the claimant community, in particular litigation funders, have since sought to compare the issues potentially faced by the Asset Management industry in relation to closet tracking to the PPI issues faced by Banks since the financial crisis. Those comparisons certainly appear a long way short of being justified at this stage, but there is nevertheless little doubt that closet tracking is generating increasing publicity and momentum, largely driven by lobbying groups and a claimant industry looking for opportunities as the PPI revenue stream increasingly dwindles.

We have today published a more detailed article, following up on our earlier blog post on closet tracking, providing context to the closet tracker issue, a timeline of its evolution, analysis of the current regulatory environment and an explanation of the funds that are more likely to be the focus of regulatory and claimant industry attention. That is intended to be a helpful guide for asset managers looking to get up-to-speed on the issue, albeit that the excitement generated in the claimant community by the FCA’s announcement of £34m compensation paid to investors seems likely premature at this stage.

That said, while the merits of any large scale litigation are yet to be established, it is prudent for the asset management industry, and in particular those asset managers that could face claims from consumers, to be prepared and to have processes and controls in place to deal with the volume of complaints that may be on the way as a result of closet tracking or other any other potential issues that the claimant industry looks to throw its weight behind. Some of the key considerations and preparatory steps for asset managers to consider in this context are set out below:

  • awareness and understanding of the regulatory requirements around the format and timing of the complaints handling process
  • keeping a complete audit trail of complaints received, assessed and responded to
  • performing risk assessments ahead of time to understand the size and scale of any potential problems
  • implementation and review of processes to ensure a standardised and centralised approach to complaints handling and consistent messaging
  • training on internal communications risks and hazards
  • identification and training of relevant staff on unscripted external communications
  • appreciation of the need for appropriate and timely communications with regulators
  • understanding of the scope of legal and litigation privilege in the context of the complaints handling process and litigation, and
  • appreciation of best practice in the context of industry co-ordination and benchmarking and the relevant competition law considerations.

As we have mentioned previously in this blog, the strengthening of price competition and a drive to ensure clarity of fund objectives and charges is very much on the FCA’s radar at the moment and something that we will be following closely as the FCA provides further updates on its proposals. It is also becoming clear that the claimant community is looking for opportunities off the back of the FCA’s work in this area - closet tracking may or may not prove to be one such opportunity, but what is clear is that now is a good time for asset managers to take the opportunity to be ready to deal appropriately and effectively with anything that does result from the momentum that the claimant industry is currently looking to generate.

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.