The UK regulator has proposed a uniform template for
calculating transaction costs incurred by asset managers.
The Financial Conduct Authority (FCA) today laid out a plan to
ensure the governance committees of defined contribution (DC) pensions had
access to data on transaction costs incurred by funds.
It recommended that asset managers compare the mid-market
price of a security with the execution price to determine total transaction
costs. This data can then be amalgamated and passed on to pension funds to help
them regularly report the costs members have incurred.
“The proposals we are announcing today will allow independent
governance committees to see fully the transaction costs that their funds pay
and enable them to make better decisions about how they get value for money for
their members,” said Christopher Woolard, executive director of strategy and competition
at the FCA.
In its consultation paper, the FCA detailed how it envisaged
its proposal applying to various asset classes, including currencies,
derivatives, and illiquid assets.
“From a practical perspective, this approach requires data
that are widely available for most assets and can be independently audited,”
the FCA said in its consultation. “There is no need to engage in complicated
calculations or to make estimates.”
If managers cannot access an intraday or opening price for a
less liquid asset, the previous closing price could be used, the regulator
In its accompanying cost analysis, the FCA estimated that
the asset management industry would incur one-off implementation costs of £13.5
million ($17.2 billion). However, the standardization of cost disclosure would
save the industry £24 million over the next five years, the regulator said.
The Investment Association (IA), the asset management trade
body, earlier this year appointed an independent advisory board to devise a “next-generation
disclosure framework” for transaction costs, led by NEST CIO Mark Fawcett and
including Railpen CEO Chris Hitchen.
“Our goal here is consistent and complete reporting for all
client groups, implementing both UK and European Union regulatory change,” said
Jonathan Lipkin, director of public policy at the IA. “We will therefore
continue the work being undertaken with the IA independent advisory board to
ensure we can deliver meaningful disclosure in tandem with new FCA rules.”
The FCA’s proposal comes amid a wide-ranging market review
of asset management announced last year. It has already announced plans to
scrutinize investment consultants that offer outsourced-CIO
services, and criticized some managers’ lack of oversight of legacy
In May, the FCA hired Daniel
Godfrey, the former chief executive of the IA, as a consultant on a short-term
contract to advise on the review.
Read the FCA’s full proposal, “Transaction
cost disclosure in workplace pensions.”
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