FCA Launches Investigation Into UK Investment Fund Platforms

July 18, 2017 by Cameron Bishop

UK regulator Financial Conduct Authority (FCA) has announced that it is initiating an enquiry to examine whether online funds platforms for retail investment are serving customer interests sufficiently.

Investment firms like Hargreaves Lansdown and Interactive Investor handle almost £692 billion of investors’ money.

The FCA pointed out that there has been a four times increase between 2008 and 2016 in the amount of money invested through such platforms.

The FCA will now examine if these companies help consumers make good investment decisions.

In a statement Christopher Woolard, the FCA's executive director of strategy and competition said

With the increasing use of platforms, and the issues raised by our previous work, we want to assess whether competition between platforms is working in the interest of consumers. Platforms have the potential to generate significant benefits for consumers, and we want to ensure consumers are receiving these benefits in practice

The latest probe follows an earlier FCA study published in June 2017 that found potential competition issues in the online investment sector. The FCA stated that the biggest firms that were part of the "advised" platforms were Funds Network, Cofunds, and Standard Life, while Hargreaves Lansdown, TD Direct Investing, Fidelity Personal Investing and Barclays Stockbrokers were top "non-advised" firms.

The regulatory agency pointed out that 6 of the 10 biggest operators today were vertically integrated or had ties to an asset manager which could potentially impact competition levels in the industry. The FCA will be comparing the online forex platforms with similar services from other intermediaries like banks or asset managers and then asses if they were using their bargaining power to provide proper benefits to investors.

The FCA also pointed out that online investment platforms frequently interacted with other platforms, financial advisers, fund ratings providers and asset managers. The FCA said it will examine whether such interactions helps investors to get better value. It will also review the barriers existing for new entrants to the sector, plus the main drivers of profitability.

The public consultation phase for the current investigation ends 8 September 2017 and the agency will release an interim report by summer 2018 detailing initial conclusions and suggestions for potential remedies.

Analysts have said that investment firms will not be majorly affected in any way. Paul McGinnis, analyst at financial group Shore Capital noted that Hargreaves Lansdown may see minimal impact of the probe since it is transparent in its investment processes.