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FCA probes funds’ use of ‘transition management’


The Financial Conduct Authority has launched a new probe into the use of ‘transition management’ services by asset managers, it has been reported.

Sources told the Financial Times that asset management houses and banks face site visits to ensure the interests of end investors are being taken into account when such services are used to facilitate big changes to investment portfolio.

Transition management is the process when asset managers hire a big custodian bank to aid in the liquidation or moving of a large portfolio of securities. An example of when the service is needed is when two funds are combined into a single product.

The FT notes the FCA is currently investigating allegations that several pension funds were overcharged by State Street’s transition managers, although no formal enforcement proceedings have been brought.

However, the regulator has already requested detailed information from a variety of organisations connected to the service, suggesting that the entire industry can face a fresh bout of scrutiny over the issue.

The FCA declined to comment to the newspaper, but cited issues such as “unclear fee structures” and poor documentation as examples of problems that could lead adverse outcomes for the end investor when transition management is used.


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