UK regulators slams asset managers over conflicts of interest
November 10, 2012 5:00 AM EST
UK asset managers are unable to demonstrate they are not putting their interests before those of customers or saddling them with unneeded costs, a survey of sector firms by regulators suggested on Friday.
Worried by apparent complacency among firms about keeping to rules, Financial Services Authority said it had demanded all chief executives make formal declarations and show that they can manage conflicts of interest.
The regulator said it has already taken enforcement action against a firm that bought a security for one client and used the proceeds to allow another customer to redeem another illiquid security issued by the same group.
It said its study of 15 firms in the sector showed managers failed to understand or communicate a sense of duty to keep to the rules to customers. The report also said the FSA was considering further action in the most serious cases.
"We concluded that most of the firms visited could not demonstrate that customers avoid inappropriate costs and have fair access to all suitable investment opportunities," the FSA said in a paper published on Friday.
The asset management industry has come under intense scrutiny since the financial crisis in the wake of a slew of misselling scandals in which savers and investors lost money.
Among its concerns, the FSA highlighted inadequate controls on how much money was paid to brokers for research and execution, casting doubt on the transparency and control of such commission payments.
Other failings identified by the regulator included inadequate reporting of errors to customers while some "applied limited thinking" to conflicts of interest arising from accepting gifts or entertainment.
"The seriousness of the issues identified requires us to take action to ensure firms comply with the various FSA rules relating to conflicts of interest," the regulator said.
The FSA said it will make its findings known to the wider asset management sector and expect firms CEO's to attest by the end of February that it has sufficient arrangements to effectively manage conflicts of interest.
"For those firms which are uncertain whether they are in a position to provide this attestation this does not leave them long to act," said Amanda Rowland, an asset management regulatory partner at Price Waterhouse Coopers.
(Reporting by Chris Vellacott and Luke Jeffs; editing by Patrick Graham)
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