The think tank has suggested that the FCA should make changes to benefit the asset management industry.

Financial think tank New City Initiative has called for the Financial Conduct Authority, the UK financial watchdog, to extend regulatory incubation, flexibility and support to the asset management sector, according to an opinion paper by NCI.

The paper, Supporting Innovation and Entrepreneurialism in Asset Management, said the FCA needs to change its approach to the asset management industry to let it develop like new financial technology firms and challenger banks.

Through the FCA’s project innovate and the joint FCA/PRA new bank start-up unit, it has encouraged financial innovation and has promoted challenger banks. The initiatives have allowed business to grow and obtain a national competitive advantage.

The summary of NCI’s recommendations:

-- NCI notes the increased barriers to entry for new UK asset managers over recent years: competition and innovation benefit consumers and should be encouraged; --Many barriers to entry come from regulatory developments that impose fixed costs that disproportionately affect newly established, smaller asset managers. NCI supports; proportionate and well-targeted regulation that aligns managers and clients, yet nascent asset managers can find that the full regulatory environment is incommensurate and stifles innovation;
-- NCI proposes that extending the FCA and PRA’s regulatory incubation initiatives to the asset management sector will ensure full regulatory oversight in a dynamic and proportionate; manner that encourages innovation in the asset management sector. Both new start-ups and new initiatives within larger firms will be husbanded, increasing consumer choice;
-- NCI notes that the FCA’s financial incubation regime has been emulated in other jurisdictions and that the FCA is expanding its project innovate initiative in response: an extension into asset management is natural and will enhance the UK’s attractiveness as a jurisdiction with a far-sighted and proportionate regulatory regime;
-- NCI invites the FCA and other regulators to engage with it to develop these ideas and help evolve the financial regulatory incubation environment to support the successful UK asset management sector;
-- NCI provides some concrete ideas in an appendix framework proposal for regulatory incubation of asset management, structured around three pillars: support of innovation and solutions; provision of advice and improved process; and regulatory pragmatism within a sandbox environment;

“Since the financial crisis, the regulatory and capital burdens on asset managers have grown enormously, resulting in a much tougher hurdle for start-ups to overcome,” said Jamie Carter, chairman. “Despite the fact that the asset management industry has much in common with other pillars of the UK’s financial services sector, such as banking, insurance and the nascent fintech industry, it has not benefited from the focused regulatory incubation environment that they have. NCI believes that an extension is feasible and merited, and the FCA’s announcement in April 2017 that it plans to continue the evolution of project innovate offers the ideal time for emerging asset managers to be included within these initiatives, promoting innovation, consumer choice and a strengthening of the UK’s financial services industry.”