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FCA: Transition managers need to step up
10 February 2014
UK regulator reveals the findings of its anticipated review into transition management firms
Some transition management (TM) providers need to improve
transparency and oversight levels, according to the UK
Financial Services Authority’s (FSA) long-awaited
review into the business.
The regulator found deficiencies in transparency and
communication by some providers with their clients and
differences in the level of control around reporting on
The review also found that a number of conflicts of interest
can arise in TM, which are not necessarily obvious to
Worryingly, the regulator said the small size of TM at many
firms can lead to senior managers underestimating the risk
weight of the business, perceiving it to be a "low-risk,
quasi-project management business".
"Before our review, some TM desks appeared to have had limited
contact with their control functions or senior
The business is far from small given that more than
£165bn of assets in legacy portfolios were transitioned
annually between 2010 and 2012 by 13 providers, while some 700
transition mandates were executed.
The FCA said that transition management is an important
business as it enables asset owners to move investment
portfolios between different managers or markets while managing
market risk and reducing transaction costs.
The FCA said it would continue to supervise firms, which
will involve requiring firms to prove they have appropriate
communications and effective performance reporting in place.
Supervisors will also continue to closely watch how TM
providers manage and mitigate conflicts of interest.
The regulator will consider if firms better understand their
clients’ information requirements and expect
clients also to consider what assistance, education or guidance
might best prepare them to carry out their obligations to
However the FCA said that its rules and guidance currently
in place were an "appropriate standard".