FSA has published a paper looking at the results of its review of how asset managers deal with conflicts of interests. It concluded that the sector does not manage the risks properly. It now plans to take action against individual firms, and require all firms to attest to it that they have in place effective arrangements to manage conflicts of interest. FSA found:
- that many firms had failed to establish an adequate framework for identifying and managing conflicts;
- breaches of FSA rules on the use of customers’ commissions and the fair allocation of trades between customers;
- that most of the firms visited could not show that customers avoid inappropriate costs and have fair access to all suitable investment opportunities; and
- that senior management attitude towards customers offered the best explanation as to why some firms managed conflicts well and others badly. Senior management had often failed to show they understood their sense of duty to customers or that they had reviewed or updated their arrangements for conflicts management since 2007.
The “attestations” FSA now wants from firms are due back by 28 February 2013. In its reaction to the paper, the Investment Management Association (IMA) has committed to developing a framework which supports firms in assessing individually how they fulfil their obligations to manage conflicts of interest. (Source: Conflicts of Interest Between Asset Managers and their Customers and IMA Response)