In its latest review, which was carried out between June 2011 and February 2012, the regulator concentrated on asset managers’ arrangements for managing conflicts of interest. This review was prompted by previous supervisory work that suggested firms had relaxed their controls.
The FSA’s latest paper said: “We identified that many firms had failed to establish an adequate framework for identifying and managing conflicts of interests.
“We also identified breaches of our detailed rules governing the use of customers’ commissions and the fair allocation of trades between customers.
“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 it has “given detailed feedback” to the asset managers it visited during the review and considered to be failing to comply with any relevant rules or principles. “In more serious cases we are considering enforcement action against firms,” the watchdog warned.
In the review, the regulator said the attitude shown by senior management towards customers is the best explanation of why some companies manage potential conflicts well and others do not.
“A few boards had defined and embedded in their business a credible, long-term commitment to serve their customers’ best interests and had established robust arrangements to identify and manage existing and new conflicts of interest,” it explained.
“But in most cases senior management failed to show us they understood and communicated this sense of duty to customers or even that they had reviewed or updated their arrangements for conflicts management since 2007.”
The FSA has sent a letter to some chief executives and asked them to report back on their company’s conflict of interest policy by 28 Feb 2013 at the latest.
In addition, the regulator plans to conduct a second round of visits about conflicts of interest and will use the chief executives’ responses to its letter to determine where these follow-ups need to be made.
