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Compensation bill hits asset managers after FCA closet tracker review

File image of Three piggy banks tucked in a drawerThe FCA has revealed that asset managers have paid back £34m to investors overcharged by so-called “closet tracker” funds.

While the regulator has not ordered the move as part of any official redress scheme, The Sunday Telegraph reports that the FCA is eyeing enforcement action against one fund manager over potentially misleading marketing material.

FCA supervision director Megan Butler told the paper that the regulator had looked at 84 potential closet tracker funds, calling for the marketing to be change on 64 of them.

The higher charges paid for active management will be reimbursed to investors who ended up in solutions that closely mirrored a benchmark or index.

While the FCA is clear that it takes no position on the relative merits of active compared to passive management, after its recent asset management market review, chief executive Andrew Bailey said the regulator had questions to ask managers after finding that £109bn of investor money was sat in funds that were only “partially active”.

An FCA spokesman tells Money Marketing the regulator will soon publish a page on its website with some details of the funds involved in the investigations as well as the next steps it will take. The page will also include an explanation of what closet trackers are.

However, the FCA said it won’t provide details on the number of clients who received the compensation or other details.

Transparency Task Force chair Andy Agathangelou says: “I think this is hugely positive news for investors, particularly long-term pension savers, right around the world, and that it can become a platform for further change and reform.

“There’s been a smoking gun on the awful issue of closet trackers for years so whilst it’s a case of better late than never, the FCA deserve great credit for chasing down this issue so tenaciously since their study.

“On a more positive note one can hope this is all just one more painful step in the asset management sector becoming an honourable profession – much of it already behaves in the right way and it would be a huge mistake to think all asset managers stoop to the kind of behaviour that has been reported. A big bright light needs to be shone on those that have behaved badly, but an even brighter one should be shone on the market dynamics that set the scene for it to happen, so that similar debacles can be avoided in the future.”

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