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Market studies are becoming the regulatory tool of choice, says TCC

Market studies are becoming the regulatory tool of choice, says TCC

Phil Deeks, technical director at TCC, comments:

“Competition and clarity appear to be the key areas of focus in the FCA’s Asset Management Market Study. The asset management industry is currently under a great deal of regulatory pressure, with a significant number of forthcoming legislation, including MiFID II, PRIIPs, EMIR and the SM&CR. Compliance with each of these regulations will result in additional costs to the industry, which is likely to impact profits. This, in turn, may act as a catalyst for greater competition.

“The FCA’s finding that average profit margins across the industry were at 36%, and the implication that this, amongst other factors, indicates weak price competition, may also have wider implications across the whole industry, if the FCA starts to broadly view profit margins at this level to be an indicator of poor value for money.

“The FCA also expressed its concerns over the clarity of objectives and charges. Although it acknowledges that these concerns will be partly addressed through the introduction of MiFID II and PRIIPs, it is still pushing ahead with its own measures to drive improvements, including exploring options for a standard template for costs and charges. That said, the regulator has no plans to consult on this issue until later this year, by which time majority of firms will have already amended the format of their charges in order to comply with the provisions of MiFID II and PRIIPs.

“It’s clear that market studies are becoming the regulatory tool of choice, as they enable a drains-up review of a specific area of the market. Recent publications, including the retirement income market study, the asset management market study and the forthcoming platforms review, will only leave few aspect of the retail value chain untouched in the regulator’s pursuit of value for money.

“A market study on the advice sector would arguably complete the suite of reviews. Despite the Financial Advice Market Review (FAMR), the sector is the only one to not yet have come under the formal investigation. However, the regulator has already issued a warning shot about the value that the advisory sector provides, as well as a clear indication of its intent to look further into the retail intermediary sector, either through a CMA market investigation or further FCA activity if the sector is brought into the regulatory perimeter.”

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