FSA reports on conflicts of interests between asset managers and their customers

13 Nov 2012

The FSA has published a report entitled “Conflicts of interest between asset managers and their customers: identifying and mitigating the risks”. Between June 2011 and February 2012 the FSA conducted thematic reviews of asset management firms, assessing their arrangements for managing conflicts of interest. The FSA found that many firms failed to establish an adequate framework for identifying and managing conflicts of interests.

The FSA expects firms to demonstrate that the FSA’s principles and rules (in particular Principle 8 of the Principles for Businesses, rules 4 and 10 of Senior Management Arrangements, Systems and Controls Sourcebook and certain rules in the Conduct of Business Sourcebook) are embedded in their businesses and that they are taken into consideration when considering new products, processes or business models. In addition, the FSA expects boards of firms to regularly review their practices to make sure there is compliance with the FSA’s requirements. As a result, the FSA expects the board of each asset management firm to discuss this document and each firm’s CEO is required to complete and return the “attestation” contained in Appendix 1 by 28 February 2013.

The FSA plans a second round of thematic visits on conflicts of interest.

FSA “Dear CEO” letter on conflicts of interest between asset managers and customers – 　

The Financial Services Authority (FSA) has published a “Dear CEO” letter on the findings of its thematic review of conflicts of interest between asset managers and their customers. The letter sets out good and poor practice, highlights the FSA’s expectations and requests an attestation on compliance to be signed by the chief executive. Key issues Between June 2011 and February 2012 the FSA undertook a thematic review of the arrangements in place at asset management firms for managing conflicts of interest. The work was driven by evidence that some firms no longer saw conflicts of interest as a key source of potential detriment to their customers and had relaxed controls that the FSA considered to be well-established market norms. The FSA found that many firms had failed to establish an adequate framework for identifying and managing conflicts of interests, and were in breach of the requirements on the use of customers’ commissions and the fair allocation of trades between customers.

A copy of the report is available.