It’s been almost a year since the FCA Assessment of Value rules came into force, and many firms would say that due to the FCA’s limited guidance thus far, they are still no clearer as to what a good value statement look like.
ESMA recently published a supervisory briefing on the supervision by National Competent Authorities (NCAs) of costs applicable to Undertakings for the Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). The briefing was response to the need to improve convergence across NCAs in the approach to undue costs.
Under the FCA’s Asset Management Market Study, the final report of which was published in June 2017, the City watchdog determined that price competition is weak in a number of areas of the industry.
While the FCA’s Assessment of Value (AoV) process is a new development in the UK market, a similar requirement on mutual funds has been in place in the United States for considerable time. The approach in the United States provides some useful comparisons to the new UK regime. The US fund governance model requires under Section 15c of the US Investment Companies Act 1940 for US fund boards to conduct an assessment on the fund managers using a number of factors commonly known as the Gartenberg Principles.
The FCA’s terminology is FCA Assessment of Value, a shift from the earlier terminology of “Value for Money” which the FCA felt focused too much on the AFMs costs. Therefore, the focus from fund managers needs to be on the full value proposition for investors rather than focusing only on fund charges. Good value does not necessarily mean low cost!
In this, the second of our series on FCA Assessment of Value, we consider whether the FCA Assessment of Value process will lead to real change in product governance processes for the benefit of investors, or if firms will use this merely as a “tickbox” exercise to satisfy a regulatory requirement.
Performance of the FCA Assessment of Value process will be a significant challenge for firms. Bringing all data together in an efficient and meaningful way will be key to the success of the FCA assessment of value process.