The UK’s Financial Conduct Authority (FCA) has released a set of new rules for fund managers, which mandates them to explain their use of benchmarks.
The move is the result of the regulator’s Asset Management Market Study (AMMS).
The study revealed weak price competition in the sector leading to lower returns for savers.
With the new rules, the watchdog aims to offer investors a better insight into how their money is managed.
Under the new rule, fund managers have to clarify why or how their funds use a benchmark, whether as a constraint on the fund’s portfolio construction, or as a performance target.
Fund managers are also required to reference these benchmarks consistently across a fund’s documents.
Moreover, they are required to measure past performance against the benchmark.
In case of a benchmark not being used, fund managers have to explain how investors can evaluate the fund’s performance.
Benchmark declarations for new and existing funds will be effective from 7 May and 7 August 2019, respectively.
Besides, fund managers have to now calculate a performance fee specified in the fund prospectus on the basis of the scheme’s performance following the deduction of all other fees.
The rule for performance fees will be effective from 7 August 2019.
FCA executive director of strategy and competition Christopher Woolard said: “We’re working to make competition work better in the asset management market and protect those least able to actively engage with their investments.
“Today’s remedies build on those we’ve already introduced and will make it easier for investors to choose the best fund for them and help them achieve their investment objectives.”
GlobalData revealed last week that 2018 was the worst year for savings and investment returns in the UK since 2008.