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Trade body demands caution from regulators over language use

The Investment Association has criticised the FCA for misusing language in its asset management market study saying it could harm the reputation of fund managers.

In the first installment of the asset management market study, published in November 2016, the FCA drew a clear conclusion on where active management fails to give value to clients.

Speaking at the interim report’s release, FCA chief executive Andrew Bailey said the regulator was “not saying passive management is better than active”, but cited “strong and consistent margins” and unwavering charges in active funds compared to falling passive costs over the past decade.

Following claims that it was skewed towards passives, the regulator pushed back on such suggestions as soon as it launched its final report into the £7trn sector last June.

Speaking at the Association of the Luxembourg Fund Industry today, IA chief executive Chris Cummings says regulators should better engage with the fund industry to avoid making mistakes in the way they talk about it.

Cummings says: “There was a mistake in the language in the first [FCA] report because it seemed to be clearly suggesting it thought passive was always delivering better returns than active.

“In the subsequent report it said it was absolutely agnostic about these things. It all depends on how we work with regulators because they sometimes can be careless with industry reputation unless they fully understand the impact of the language they use. We need to work more personally with them especially given the structural importance of our industry.”

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A former City lobbyist, Cummings has been vocal on the role of other regulators and the impact of new regulation coming out of Europe.

Cummings says regulatory bodies need to adjust their language when labeling asset managers, especially when they are likened to banks.

He says: “We need different engagement and language and that burden has to come from us. My plea to us all is to get more involved in the policy making.”

Cummings’ remarks echoed heated views from other speakers at the conference, including German Investment Funds Association chief executive Thomas Richter who says the fund industry needs to recover from the complexity and the “mess” that Mifid II and Priips have created.

Richter says some requirements in Mifid II are set to increase competition and cost transparency but other more complicated rules won’t have any impact because “you can’t implement something you don’t understand”.

He adds: “Investment advice was better 20 years ago. Now [the new rules] create more compliance issues, advisers need to consider their own risks, they can’t buy single stocks, it is all more standardised and this is not to benefit the end investor. The concept has to change and we need better regulation.”

Cummings says there is a risk new regulations could step back from their primary aims.

He says: “Things should be made simpler. Will this [regulation] make it easier for people to save? And who is paying? There are some big questions we would love to dive for details. But we are not able to see the wood from the trees. We lost sight about these big questions with regulation.

“This is about Mifid II and Priips. As an industry we can’t handle information that is wrong. No politician will say this [Mifid II and Priips] is making it easier for people. These things need to be called about.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. David Cathcart 6th March 2018 at 4:00 pm

    Well Mr Cummings, welcome to our world, the world of the IFA, we have been lambasted for years – so get over it

  2. Chris was Aifa Director General so may well be aware of this. Just a thought.

  3. Yep
    The regulator clearly uses language that implies it knows better ..across the board not just in your instance.

    We have a regulator that believes the whole of our industry works for them, they seem to be very confused of their “real” role in this world

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