04 December 2013

The FCA's focus on integrity and in particular investment managers

Harvey Knight
Partner | UK

On 14 November 2013 the FCA’s chief executive gave a speech which focused on conduct and ethics within firms, which he said poses significant challenges for investment managers in particular. As business integrity had become a dominant preoccupation of investors and since culture, was difficult in itself to measure, the FCA are now using a variety of resources to measure conduct, such as probing the sources of revenue (how a firm makes its money) and how the firm’s business model delivers against the expectations of consumers.

The FCA considers some asset management firms are not taking their responsibility to clients as seriously as they could with evidence of poor transparency and accountability in spending commissions charged to customers, as well as firms pushing the definition of research, using client commission to pay for corporate access.

In conclusion, Mr Wheatley suggested the following key questions for firms to consider whether UK based or not:

  • Are oversight arrangements in your firm adequate?
  • Is client information up-to-date?
  • Is the market managing its conflicts of interest?
  • Is it delivering the services its clients sign up for?
  • Are portfolios consistent with consumer objectives?
  • Are industry participants clearly setting out their periodic reports?

The comments on the importance of integrity made in Mr Wheatley’s speech was further emphasised in the FCA’s recent statement the Royal Bank of Scotland’s (RBS) lending practices with respect to customers in financial difficulty.

Whilst commercial lending is not a regulated activity under the Financial Services and Markets Act (FSMA) 2000 (Regulated Activities) Order 2001, the FCA has nevertheless raised concerns as to whether RBS treated its customers fairly and with integrity. Accordingly the FCA has requested a 166 skilled persons report be carried out by RBS to review the allegations on the bank’s lending practices, which if substantiated, the FCA states, the allegations “[may also point to] wider concerns in the firm’s governance and culture.”

Firms and individuals with any concerns about the FCA’s approach to integrity issues should contact Withers’ UK financial services team.

Category: Article