September 21, 2014

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September 19, 2014

UK Financial Services Authority (FSA) Requires Asset Managers to Address Conflicts of Interest

On November 9, the UK Financial Services Authority (FSA) issued a paper entitled “Conflicts of interest between asset managers and their customers: Identifying and mitigating the risks” (the Paper). The Paper resulted from a thematic review of asset management firms conducted between June 2011 and February 2012 assessing their arrangements for managing conflicts of interest. The FSA stated that the thematic review was “prompted by evidence from our other supervisory work that some firms no longer saw conflicts of interest as a key source of potential detriment to their customers and had relaxed controls that we had considered to be well-established market norms.”

The matters covered in the thematic review and addressed in the paper include:

  • How firms identified and controlled conflicts of interest; 
  • How firms managed the purchase of research and trade execution services on behalf of customers; 
  • How firms managed gifts and entertainment; 
  • How firms ensured customers have equal access to all suitable investment opportunities;
  • How firms managed personal dealing by employees; and 
  • How firms allocated the cost of errors between themselves and their customers.

The FSA has concluded that the findings from the thematic review require it to take action to ensure firms comply with the various FSA rules relating to conflicts of interest. In particular, the FSA will require the board of directors of each asset management firm to consider the Paper at a board meeting and the CEO will be required to file an ”attestation” in the form set out in the Paper confirming that the firm manages conflicts effectively and in compliance with FSA rules.

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©2014 Katten Muchin Rosenman LLP

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About this Author

Partner

Edward Black, a partner in Katten Muchin Rosenman UK LLP, has a wide range of funds and financial services experience. He has acted for securities, commodities and derivatives brokers and dealers, banks, investment banks and investment managers for over 20 years. This has led to substantial involvement in commercial and transactional work in the financial services field as well as extensive regulatory expertise, and to significant experience with employment law matters.

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