The threat of a “downward selling spiral” caused by investors escaping a failing asset manager is a concern listed in the regulator’s new mission and business plan, but industry insiders say the risk has been overplayed.
Lee Robertson, chief executive of Investment Quorum, was broadly supportive of the regulator’s more conciliatory tone and areas of focus.
He applauded its focus on working with firms to make improvements.
However, he added the talk of asset management firms failing was a surprise and said: “In one breath they are talking about asset managers having high profit margins and in the other they talking about market stability if they fail.
“Of course anything where a firm fails would be bad but I think they might be overplaying the risk of that happening.”
Overpayment for investment services, the creation of products to suit managers and advisers rather than end-investors and the behaviour of custody banks will also be examined by the FCA in the coming years according to its Sector View of investment management.
The regulator raised concerns that contracts between custody banks and investment managers were more beneficial to the banks, and that long 10-year contracts made it difficult for managers to switch providers.
Instead, the FCA wants to ensure custody banks, often relied on by portfolio managers to run fund accounting, upgrade to more modern technology systems as “the prudential and operational risks associated with a significant service outage within the sector are high”.
Top managers’ pay and accountability will remain high on the regulator’s agenda across the breadth of financial services.
