Gina Miller slams FCA’s silence on Mifid II breaches

The Financial Conduct Authority has been lauded for requiring managers to demonstrate value for money but Gina Miller has come down hard on the regulator for failing to toughen up on firms violating Mifid II cost disclosure rules.

Gina Miller pans FCA fine for Barclays boss

Most fund managers and industry commentators were supportive of the financial services watchdog’s proposed actions to tackle concerns highlighted in the asset management study it published last June.

Miton chief executive David Barron called the remedies outlined “sensible” and noted “a broader assessment of value is welcome”.

Kevin Doran, CIO at AJ Bell, also “wholeheartedly supported” the FCA’s push to deliver more information to clients arguing that “investors need better choices, better value and better communication from fund providers”.

“For far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges,” he said.

Barron also lauded the UK regulator’s approach to setting out clearer fund objectives for clients and disclosing information around benchmark-constraints and notifying clients where a fund has one or more benchmarks.

“We believe that a manager offering differentiated yet straightforward active strategies with the prospect of good long-term returns after all costs, adds the real value,” said Barron. “We aim to deliver this through funds that are unconstrained by benchmarks and we empower our managers to invest according to their convictions.”

“A change in behaviour is long overdue,” said Nutmeg CEO Shaun Port, adding “the FCA should be prepared to take action on any firms dragging their feet”.

“While cost shouldn’t be the only factor considered when making an investment choice, it is vital that all investors have a clear understanding of what they are paying and it is easy for them to compare like-for-like costs,” he said.

Silence on enforcement

However, industry firebrand and founding partner of SCM Direct Gina Miller was underwhelmed by the latest remedies offered by the FCA, which she said did not include enforcement actions for firms in breach of Mifid II cost disclosure requirements.

“It is shocking how long it has taken the FCA to achieve nothing more than restating the obvious,” she said.

“They have dealt with important but relatively minor negative industry malpractices, such as box profits, but not the substantive issue of misleading fees through the various distribution channels.”

Specifically, she was critical of the regulator’s silence on how it intends to respond to flagrant breaches and potentially illegal activity on fees and charges disclosure now required under Mifid II.

Miller said her own firm had recently sent the regulator a “damning” 90-plus page dossier exposing “industry wide non-compliance” on issues like disclosing the total costs of funds to consumers and ensuring  communications are “clear, fair and not misleading”.

The failure by the FCA to enforce the costs and charges provision within Article 24 of Mifid II is costing consumers between £903m and £3.3bn per annum, SCM Direct estimates.

“Kicking the issue into the long grass yet again, is an indictment of an industry and regulator that both refuse to protect consumers,” she said.

“The FCA sights the work being done by the Institutional Disclosure Working Group but this is only for institutional investors. Ordinary consumers continue to be treated as second class citizens by the FCA and industry.”

Miller suggested the dossier could contain evidence that several FCA-regulated firms have committed a criminal offence by creating “misleading statements and impressions”.

SCM Direct has written to the FCA requesting an immediate investigation into these instances of non-compliance and asked the regulator to set up a taskforce to ensure an industry-wide mandated common costs and charges template is put in place from 1 September 2018.

“Should the FCA continue to fail ordinary consumers by not ensuring a competitive industry, SCM Direct will consider its legal remedies including seeking a Judicial Review,” she warned.

Independent directors

Among the new requirements, fund managers must now appoint a minimum of two independent directors to their boards.

While Andrew Strange, director at PwC, said requiring additional impartial oversight was a welcome development, he added it is not a one-size-fits-all solution and should not become a box-ticking exercise.

“Independent Neds can bring an important perspective to a board, but they are not a panacea and must be seen in the context of wider governance and board specialism,” he said.

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