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UK roundup: Financial Conduct Authority, F&C, LDI market

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The Financial Conduct Authority (FCA) has set out its business plan for the coming 2015-16 year and said it would conduct a market study on the asset management space, examining charges paid by investors.

The UK financial services regulator said it would develop the full scope of the market study in the coming months but focus on the level of charges and the factors affecting those levels.

A document detailing the exact parameters of the study will be published in due course, it said, but a thematic review into investments will occur later this year, alongside a competition review of managers.

PwC said it was likely focus on whether investment funds performed in line with what was sold to investors, with a potential extra focus on specific-target or absolute-return solutions.

The regulator said it was also restructuring to create two separate divisions, with one responsible for supervision of wholesale and specialist markets, and the other for retail markets and authorisations.

The FCA, overseen by HM Treasury, is responsible for supervising insurance-based defined contribution (DC) products, while The Pensions Regulator, overseen by the Department for Work and Pensions (DWP), regulates defined benefit (DB) and trust-based DC schemes.

In other news, asset manager F&C has said the UK liability-driven investment (LDI) market saw a strong quarter in the final three months of 2014, as both interest rate and inflation hedging levels rose.

Interest rate liability hedging increased by 26% on the previous quarter, covering £23bn (€31.6bn) of liabilities.

F&C said this was driven by pension funds coming to market before year-end and existing participants switching between hedging strategies.

Inflation hedging also rose 2% to £18.3bn despite the pricing of the strategy not falling in line with nominal yields, as is normally expected.

F&C said demand for interest and real rate hedging strategies had kept prices higher than expected for most of the quarter, with prices dropping in mid-December as demand waned.

Both strategies were mainly implemented via the swaps market, F&C said, despite the Gilt market’s becoming a cheaper option.

There was some activity in shifting from swaps to Gilts, but this focused around syndicated sales from the UK government.

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