FCA fears fund managers will underestimate transaction costs

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The FCA’s board expressed concerns that fund managers could low-ball estimates of their transaction costs to appear more competitive than their peers ahead of publishing its review into the sector.

Minutes released today reveal that in a meeting in June, one week before the FCA’s final report into the asset management market was released, the board discussed how its supervision teams could watch for “systematic under estimation” of costs as it attempted to bring in reforms to bring greater transparency around fees and charges.

The minutes read: “It was suggested that there needed to be some protection against systematic under estimation of transaction costs which could give firms a competitive advantage. It was felt that this was a supervision task and that monitoring patterns of underestimation would expose such practices.”

While the regulator continues its plans to translate Mifid II for the UK market, the board also noted that it had begun testing on how to implement EU rules most effectively.

The minutes read: “It was noted that European regulations provided greater clarity of what investors need and testing was being undertaken to ensure implementation would be as effective as possible in the UK.”

The minutes also note that chief executive Andrew Bailey “suggested that consideration be given to whether more information could be provided to the industry on Brexit”.