Last week, the UK regulator published a final report following consultation on its asset management market study published in June 2017.
FCA executive director of strategy and competition Christopher Woolard said at the time the City watchdog wanted to achieve a “fair, transparent, open and accountable market”.
Moody’s acknowledged the changes would enhance transparency and protection for investors, but noted it would be credit negative for the industry.
Asset managers would face increased operations and compliance costs and lower fees, said associate analyst Tiziano Oliva in a sector note issued on Monday. Box profits, a single fund fee, independent directors on fund boards and shifting investors into the cheapest share classes would all affect asset managers’ bottom lines, said Moody’s.
Oliva added the changes would accelerate the shift to passives.
FCA’s new rules and the credit implications for UK asset managers
| Rule | Items affected | Credit implication |
| Value for money assessment and reporting | Fees and profit margins | Negative |
| Independent directors comprise 25% of total and a minimum of two board members | Administrative expenses | Negative |
| Box profits repayment | Profit margins | Negative |
| Switch to cheaper share classes | Fees and profit margins | Negative |
Sources: UK Financial Conduct Authority and Moody’s Investors Service
He said: “Active managers that have been experiencing an increase in operating and compliance costs following a number of local and global regulatory initiatives will have to overhaul their cost structures and product line-up or merge to offset the pressure on revenue and generate economies of scale.
“The additional rules on delivering value to investors will reduce the fees charged by active managers that will have to adapt their business models and product offerings to an even more competitive pricing environment.”
Blackrock and Fidelity, which offer diverse active and passive products, are best positioned to deal with the changes, Oliva said. Moody’s currently rates Blackrock A1 with a positive outlook and Fidelity as Baa1 with a stable outlook.
Box profits changes come into effect on 1 April 2019, while rules on governance take effect from 30 September 2018.
