In this report, we follow up on our earlier analysis of the Financial Conduct Authority’s competitive review of wholesale finance and corporate lending (see Client Report STRUCTURE12) with an assessment of its preliminary conclusions about asset management. The FCA’s focus is very different than that of the U.S. Financial Stability Oversight Council (see FSM Report SYSTEMIC75), focusing on whether investors receive “value for money” from asset managers and if ancillary services creates conflicts of interest. FSOC, in contrast, is focused on systemic concerns, including on the resolution issues recently addressed by global regulators for this sector (see FSM Report RESOLVE31). The Securities and Exchange Commission has taken up more limited issues, but these also do not track FCA’s focus, in part because the SEC lacks many of the powers FCA has to penalize firms, force repricing, and otherwise sanction them if activities are safe and sound but nonetheless are deemed adverse to investor or broader market interests. However, the FCA, like FSOC, is examining whether providing custody in conjunction with asset management poses risk, focusing here not on systemic considerations like FSOC, but on investor conflicts. The FCA’s inquiry will have a less immediate impact in the U.S. and other nations than its wholesale-finance analysis, but it will nevertheless have major implications for asset managers in London and, thus, around the world. Indeed, advocacy groups in London today are already calling on FCA to sanction asset managers in an area included in the study as a low priority: dictating how asset managers may exercise voting rights.

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