Asset management firms are required to take remedial action on conflicts of interest policies within four months.
The Financial Services Authority (FSA) published a ‘Dear CEO’ letter Conflicts of interest between asset managers and their customers with findings of its reviews on asset management firms undertaken June 2011-February 2012, which identified inadequate frameworks on managing conflicts of interests and breaches of regulatory rules on trades between customers.
The FSA concluded most firms visited ‘could not demonstrate that customers avoid inappropriate costs and have fair access to all suitable investment opportunities’.
The message to the industry in the letter stated the integrity of asset managers, acting on behalf of their customers, is central to the relationship of trust and confidence between the industry and customers, and firms need to act in customers’ best interests ahead of their own.
IMA chief executive Daniel Godfrey said the IMA is committed to driving a process with members and the FSA to provide a framework for managing obligations on conflicts of interest.
“The integrity of the management of conflicts of interest is at the heart of trust in asset management,” Godfrey said. “One of the most important guiding principles of asset management is the need to act on behalf of customers and to ensure business and investment decisions are driven by putting their interests first.”
FSA head of asset management supervision Ed Harley said: “our thematic reviews show that too often asset managers have been playing lip service to conflicts of interest, which is disappointing.
“Asset management firms can’t manage their customers’ money properly without managing conflicts of interest well. We want asset managers to put their customers at the heart of what they do.”
The FSA recommended its Conduct of Business Sourcebook rules on using customers’ money should be applied when considering new products, and embedded in asset management businesses.
The FSA plans a second round of thematic visits on conflicts of interest based on responses to this letter.