FCA publishes interim report on investment platforms market study

The FCA has today (16 July 2018) published its interim report (MS17/1.2) in relation to the investment platforms market study. This study was launched in July 2017 in the form of a terms of reference to assess whether competition between investment platforms works in the interests of consumers.

The interim report sets out the findings the FCA has identified thus far. Broadly, the FCA has found the market to be working well in many respects, although it identified five instances where competition between platforms is not working well for consumers:

• switching between platforms can be difficult for consumers who would benefit from switching (the FCA reports that about 7% of consumers who have tried switching platforms have failed to do so)
• price sensitive consumers can find it difficult to shop around and choose a lower-cost platform
• the risks and expected returns of model portfolios with similar risk labels are unclear
• consumers may be holding large cash balances on direct-to-consumer (D2C) platforms and may be missing out on investment returns, the interest they lose or charges they pay, and
• “orphan clients” who were previously advised but no longer have any relationship with a financial adviser face higher charges and lower service.

Of particular note is that the FCA also identifies "so-called non-monetary benefits" offered to Independent Financial Advisers (IFAs) by platforms as being a specific area of concern, such as white-labelling, training and bulk rebalancing tools.

Interim proposals on remedies

The FCA has made seven interim proposals on how to improve competition between investment platforms to work better for consumers:

• help consumers on D2C platforms who find it difficult to shop around and choose platforms on the basis of price by making fees easier to understand and compare
• strengthen the extent to which platforms drive competition between asset managers
• help consumers building large cash balances without knowing about interest, charges and potential investment returns
• make it easier for consumers and advisers to switch platforms
• help orphan clients by tacking price discrimination and requiring platforms to switch these clients to a most appropriate proposition and monitor for inactivity
• help consumers who may be exposed to unexpected risk levels, and
• address potential non-compliance with the FCA’s inducement rules.

The FCA recognises that the implementation of Markets in Financial Instruments Directive II (MiFID II) and improvements emerging from the Transfers and Re-registration Industry Group may help solve some of the problems it has identified, although the FCA also acknowledges that it may need to make additional rules to supplement the current regulations. The FCA will assess industry progress ahead of publishing its final report.

Next steps

The deadline for responses to the interim report is 21 September 2018.

Simmons & Simmons will continue to monitor the potential impact of the platform study on the asset management community and will advise on this impact in the coming days.