The Financial Conduct Authority (FCA) in the UK says standards and transparency across the custody industry have improved over the last few years and the provision of more data and greater customer understanding is empowering customer decision-making in transition management.
Speaking at the FCA Asset Management Conference in London today, Clive Adamson, FCA Director of Supervision, outlined the body’s vision for the asset management sector, how its supervision model has changed to facilitate this and some of the progress it has made so far.
Underpinning the drive towards more transparency in asset management, the FCA is in the midst of “extensive work” in areas of custody and transition management.
Work on these areas began earlier this year, when the regulator set out its key areas of focus for 2012/13. Its business plan for the period included the following in relation to custody: “The custody bank business model is evolving and the basic premise of providing safekeeping and custody of client assets—which is high volume and low margin—is facing strain in the ongoing low interest-rate environment and because of changing regulatory requirements.”
The regulator’s work on the transparency of these secondary services aims to establish whether investors are being disadvantaged or charged excessively given that they are increasingly reliant on these services for revenue.
Speaking today, Adamson said: “This is important, given that for some of these banks, ancillary services represent some 40% of their revenues, without which it is likely that their core offering of custody and fund administration would be unsustainable at current prices.
“I am pleased to say that we did not find inappropriate behavior taking place and have concluded that standards and transparency across the industry have improved over the past few years. This has been primarily driven by competitive pressures leading to improvements in services, and by clients being better informed about the potential risks and having better data.”
Adamson called on buy-side clients to hold their custodians to account to ensure they are getting the services expected at the correct price.
He also provided an update on the FCA’s “thematic review” of transition management. Here, the FCA has looked at whether poor transparency and opaque legal documentation could lead to poor consumer outcomes in the provision of this service. The outcome of the review would determine whether there is sufficient transparency or whether enforcement is required. “What we found is that the asymmetry of knowledge between providers and customers, combined with the potential for conflicts of interest to arise on such complex and fast moving transitions mandates may lead to adverse outcomes,” said Adamson.
“While transparency remains a problem within transitions management, we believe the provision of more data and greater customer understanding is empowering customer decision-making and we will be working with providers and customer groups to ensure improvements continue to be made.“
Standards and Transparency in the Custody Industry Have Improved, Says Regulator
The Financial Conduct Authority (FCA) in the UK says standards and transparency across the custody industry have improved over the last few years and the provision of more data and greater customer understanding is empowering customer decision-making in transition management.
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