FCA: communication is the test of culture

Andrew Bailey, chief executive of the FCA, has again highlighted the issue of trust in the finance sector in a speech at the Investment Association Culture Conference.

Describing this as an issue that could harm consumers, especially as they prepared for retirement, he referred to the Asset Management Market Study, pointing at a lack of transparency in terms of charges and fund objectives. However, Bailey was clear himself that was just part of a wider set of issues of culture and trust.

Transparency, he noted, is not enough on its own, and has to go along with effective communication. Bailey reiterated the point, saying it is: “something we see commonly in our work with firms and sectors, namely that the answer to information problems is not just to present more and more of it and then wonder why the consumer does not respond with clarity, and behaviours do not change, at least to the predicted degree. The effectiveness of communication with consumers is in my experience a test of culture.”

The link here is to ethical investment, and citing the 2017 Mintel Equity Investing UK report that indicated that 54 per cent of respondents believed ethical investment is important, and the FCA is consulting on rule changes to require the Independent Governance Committees of contract-based pensions to report on how they manage environmental risks in their investment strategies and how they take into account the ethical concerns of investors.

This echoes the Government decision to clarify that trustees have a fiduciary duty to consider long-term risks and opportunities and the current consulting on amendments to pension scheme regulations that would oblige trustees to outline how they take account of financially material risks and opportunities including climate change considerations.

Bailey predicts that “a longer-term shift towards passive investing goes alongside a desire for more ethical and socially responsible investing and a desire to encourage longer-term patient capital… and that in doing so there will be some re-clarification of the meaning of active investment. I would argue that an industry which enables the support of patient capital and innovation, and of ethical investment and social responsibility, will be one where the trust will be stronger and deeper, and the culture will prosper. And, the regulator can help by enabling change to happen.”

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