FCA warns buy-side about poor fund value assessments

A review of assessment of value reports flagged failures in meeting standards the FCA expects after a major market study in 2017 led to more stringent disclosures for funds.

Fund managers in the UK have been called out by the Financial Conduct Authority (FCA) on sweeping failures related to fund value assessments.

A review of 18 buy-side participants varying in size and business models carried out by the FCA between July 2020 and May 2021 found that assessments of value were poorly designed, incomplete and could not be justified.

The FCA warned it will carry out another review within the next 12 to 18 months to assess how firms have responded to the feedback and may implement further regulatory tools if funds continue failing to meet standards expected.

More stringent disclosures rules around fees paid by investors were implemented in September 2019 in the UK following a major asset management market study from the FCA in 2017. The study found a lack of competition among fund providers on fees and charges, with some failing to disclose charges such as transaction costs before investment decisions are made.

In February, an analysis from the CFA Society of the UK revealed that many assessment of value reports had failed to meet the needs of investors and the spirit of the FCA’s requirements. The analysis of reports from 145 firms representing £1.3 trillion in assets under management found that costs were among the worst areas of reporting.

“It is concerning that many of the AoV reports being produced are failing to meet some of the basic requirements set out by the FCA,” Andrew Burton, professionalism advisor for CFA UK, commented on the analysis at the time.

“The rationale behind making these reports obligatory was to increase transparency about fund performance and value for investors. Many of the reports being published, however, fail to provide the quality and completeness of information needed to advance investor appreciation of their current and potential fund investments.”