New rules designed to increase transparency within the UK’s asset management industry will reduce the profit margins of active managers, ratings agency Moody’s said on Monday.
The new rules, announced last week by the Financial Conduct Authority, will not only hurt industry margins and but could also have the effect of boosting lower cost passive tracker funds, Moody’s warned.
The rule changes, which take effect from September 2019, will require firms to act in the best interest of investors.
“Although the new rules enhance transparency and protection for investors, active asset managers’ operating and compliance costs will increase and their fees will decline, reducing profit margins and accelerating the shift toward passive investment management,” Moody’s said.
“Active managers that have been experiencing an increase in operating and compliance costs following a number of local and global regulatory initiatives will have to overhaul their cost structures and product line-up or merge to offset the pressure on revenue and generate economies of scale.”
Rules requiring managers to return so-called ‘box profits’ will come into force in April 2019.
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