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FSA writes to fund group CEOs over conflicts of interest

FSA writes to fund group CEOs over conflicts of interest

The Financial Services Authority has written to the chief executives of fund groups over potential conflicts of interest between asset managers and clients, warning it could take action.

In its latest review, the watchdog found that in most cases senior management failed to show they understood the issue of conflicts of interest and did not communicate this sense of duty to customers.

The FSA said: ‘In these firms, employees too often lacked awareness of situations where short-term business goals conflicted with the long-term interests of customers.’

The watchdog said it has given feedback to firms visited during the project and where firms have not complied with its rules on conflicts of interest, has asked them to justify their approach or take remedial action.

It said in more serious cases, it is considering enforcement action against firms.

‘We have concluded that the findings from this thematic review need to be communicated to the wider asset management sector,’ the regulator said.

‘We have also concluded that the seriousness of the issues identified requires us to take action to ensure firms comply with the various FSA rules relating to conflicts of interest.

'We therefore expect the board of each asset management firm to discuss this document and each firm’s CEO to complete and return the ‘attestation’… by 28 February 2013.

‘We plan a second round of thematic visits on conflicts of interest and will use the responses received to inform our selection of firms for follow up assessment visits.’

The review was prompted by evidence that some firms ‘no longer saw conflicts of interest as a key source of potential detriment to their customers’ interests' and had therefore ‘relaxed controls’ that the FSA has considered to be ‘market norms.’

The FSA has also flagged up the need for firms to ensure customers have ‘equal access to all suitable investment opportunities,’ adding that ‘some firms do not allocate trades between different clients in an equitable manner.’

Although most firms were found to have satisfactory procedures, conducting transactions on behalf of several clients in the same security at the same time, the watchdog said in one instance, ‘a firm exempted various senior fund managers from trading through the central dealing desk, and allowed them to delay allocating trades until several hours after execution.’

The FSA said: ‘When challenged to justify this practice, the firm implemented a review, which found evidence that late allocation of trades allowed fund managers to favour some customers over others.’

In response to the FSA’s paper, Daniel Godfrey, chief executive-designate of the Investment Management Association said: ‘The integrity of the management of conflicts of interest is at the heart of trust in asset management and the FSA has clearly identified important issues of concern. 

‘One of the most important guiding principles of asset management is the need to act on behalf of customers and to ensure that business and investment decisions are driven by putting their interests first.’

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Profile: Kevin Doran's formula for success at AJ Bell

Profile: Kevin Doran's formula for success at AJ Bell

From a degree in theoretical physics to teaching and becoming one of the youngest chief investment officers in the UK, Kevin Doran has certainly had an interesting career.

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