The FCA’s PROD Review, AoV turns 1 and concerns around ESG mis-selling
In this, the first in FBC’s new fortnightly fund governance news update, the team has scoured the trade and national press to identify the top headlines and stories that we believe will be of interest to fund board directors, and anyone interested in investment fund governance. This initial blog covers the month of February.
It has been more than 12 months since the first Assessment of Value (AoV) reports emerged after an intensive period of work by fund boards across the UK. The pandemic and remote working has posed challenges that boards have tackled admirably. But we start our analysis with news that the Financial Conduct Authority (FCA) isn’t happy…
Regulator prods on governance
The FCA has published a critical review of product governance standards linked to a review of the Markets in Financial Instruments Directive (MiFID II), and what especially caught our eye in the section outlined Governance and Oversight was its assessment of the “varying quality of contribution from the independent non-executive directors,” a theme that we shall be visiting in the very near future at FBC’s four day “festival of investment governance”, the iNED BootCamp, in conjunction with NatWest Trustee Depository Services. Registration details can be found at the bottom of this email.
The regulator was also concerned about the lack of cooperation between asset managers and distributors to ensure products were suitable to investors, as outlined in this FTAdviser article. A subsequent article from Ignites Europe illustrated that improving the dialogue between asset management companies and distributors would be easier said than done.
A happy first birthday for AoV?
Critics of the AoV process abound; indeed, FBC’s own Assessment of Value Analyser presents a “very variable” picture of the first year’s efforts, but let’s be fair when the effort has yielded positive results as Investment Week reported. Research from Fitz Partners found that investors in 600 different products had benefitted from fee reductions as a result of the AoV process. Ignites Europe’s coverage (subscription required) cited a total of “at least £120m” cut from ongoing charges as investors were moved to cheaper share classes.
However, there is a long way still to go. At the start of February, The Times reported (subscription required) on CFA Institute research criticising the quality and accessibility of AOV reports. The Institute’s report is available on its website and via the FBC Member Portal.
ESG mis-selling concerns
Responsible and sustainable investing is one of the biggest challenges facing the asset management world. Ignites Europe reported in February that 42% of institutional investors had fired a manager over ESG issues, citing research from consultancy group bfinance.
The Central Bank of Ireland has warned Ireland-domiciled investment funds to be wary of the risks of mis-selling ESG-branded funds. The message formed part of its wider Securities Markets Risk Outlook Report, with the relevant ESG comments from page 12.
Greenwashing was the subject of this article from Investment Week, looking at the many and varied ways of calculating ESG ‘scores’. Ratings can be very different depending on provider, so managers need to know and explain how they use the information.
This is a particularly important message as asset managers consider expanding or adapting their product ranges. More than 250 funds changed their approach or strategy last year to align with investor demand for ESG products, according to this report from the Financial Times.
Finally, an interesting insight into the ‘S’ of ESG as it relates to asset managers’ workforces from Investment Week. Editor Lauren Mason’s feature describes the specific challenges faced by disabled staff during the pandemic, and how remote working has not necessarily made work more accessible.
Recent audit rule changes in the UK have made individual company directors directly responsible for the accuracy of financial statements, in the wake of the 2018 high-profile collapse of Carillion. However, this has had knock-on effects for the cost of director insurance, as outlined in this FT article.
Proposed tax changes from HM Revenue & Customs could make Ireland or Luxembourg legal domiciles less attractive to UK-based asset managers, according to Ignites Europe, as the UK government continues its attempts to attract more financial services business post Brexit.
FBC takes no responsibility for the accuracy or quality of the news in the links provided above. In some instances, as indicated, a subscription is required to access certain news articles, and content stored on the FBC portal is freely accessible for FBC members.
In association with NatWest trustee and Depository Services
19th-22nd April 2021
Registration is open for the 2021 iNED Bootcamp, held in association with NatWest Trustee and Depositary Services. Join us for this annual event that will be held exclusively online and will take place over the course of four days from the 19th of April – 22nd of April. Content is primarily on demand, with two live events to kick-off and conclude the Bootcamp. The first event on Monday, the 19th of April is entitled: State of investment Fund Governance in 2021: Highlights from the FBC iNED Survey, where the findings of FBC’s iNED survey will be released, examining key challenges and opportunities facing independent directors on fund boards.
As soon as you register, you’ll receive a link to a personalised portal that will open on the 19th of April. This link will provide you with access to all Bootcamp content, including live events, videos, podcasts and articles.