Policy Papers

Supporting Innovation and Entrepreneurialism in Asset Management

New City Initiative (NCI) provides a collective voice for boutique asset managers, from the UK and the Continent, which share a strong common culture focused on alignment of interest with customers. NCI’s core values are independence, alignment of interest, transparency and responsibility. To that list I would add a fifth, which is competition. In order for the industry to continue to innovate and develop new products and solutions, and improved ways to deliver them to customers, there must be healthy competition and choice.

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. Many of our own members, now successful, established firms, have said they could not start today as they had done ten or twenty years ago. That is a terrible indictment on the industry and should be a worry for the customers it serves.

The FCA’s Project Innovate and the joint FCA/PRA New Bank Start-up Unit have addressed similar issues for FinTech and challenger banks respectively, but as yet there is nothing similar in place for asset management. This paper proposes a framework for incubation of asset management, which NCI sees as a natural extension of existing initiatives. In fact, one of the proposals is that there is an approved suite of platform solutions provided by FinTech firms within Project Innovate which can then be used, or tested, by the incubating managers. Our proposal centres around three pillars: 1) supporting innovation, 2) provision of advice and 3) a regulatory sandbox.

Within the third pillar, we argue for a lighter touch regulatory regime until the manager or product reaches scale. In reality, new managers start with the backing of sophisticated institutions which do not require the same regulatory protection as a retail investor and the sandbox environment should apply proportionality. To give an example, it seems unnecessary for a start-up firm managing £50m of listed UK equities to report transactions which can be reported by stock exchanges or counterparties. A manager that is small presents no systemic risk and the trades are immaterial in comparison to the broader market.

The FCA has indicated it is considering this extension of their existing work, and NCI encourages them to proceed and welcomes the opportunity to discuss this proposal.

Jamie Carter

Chairman, New City Initiative Chief Executive, Oldfield Partners