LONDON (Reuters) - Asset managers could face enforcement action for failing to give value for money from “dealing commissions” they charge customers for research and for executing share orders, Britain’s Financial Conduct Authority said on Friday.
In a stinging rebuke, the watchdog said most of the 17 asset managers it visited were falling short of its best practice recommendations for dealing commission, which is worth 3 billion pounds ($4 billion) a year to the asset management industry in Britain.
The FCA’s criticisms follow an in-depth review of the 5.7 trillion pound funds industry, which is part of a wider effort by the watchdog to improve value for money for customers of asset managers.
“More work needs to be done by investment management firms to ensure they spend their customers’ money with as much care and attention as if it were their own,” the FCA said.
Several firms could not demonstrate meaningful improvements in terms of how they spend their customers’ money through their dealing commission arrangements, the FCA said.
“Where we identify breaches of our rules, we will consider further action, including referring firms for further investigation,” it said.
The watchdog said most asset managers that it surveyed did not make proper checks on “best execution” to show they were obtaining the best deal for a customer’s stock or bond order.
The FCA’s findings are a warning shot to the industry ahead of new European Union “MiFID II” rules from next January which reinforce obligations to find a customer the best market price, and to “unbundle” the cost of dealing from research and avoid an opaque lump sum fee.
“We found instances where compliance staff were not empowered by senior management in order to provide effective challenge to the front office on execution quality,” the FCA said.
For some firms, checking on best execution was no more than a “tick box” exercise, it said.
The Investment Association, a trade body, said the industry was committed to building a robust framework for the payment of research that works in the best interests of its clients and delivers value for money.
“We will continue to work with our members and regulators in the UK and EU to deliver research payment and budgeting processes and best execution in line with best practice and MiFID II requirements,” the Investment Association said.
The FCA said it will revisit the issue of best execution later this year to see what evidence asset managers have that they customers are not paying too much for execution.
“If we find that firms are still not fulfilling their best execution obligations, we will consider appropriate action, including more detailed investigations into specific firms, individuals or practices,” the FCA said.
Reporting by Carolyn Cohn, Huw Jones and Maiya Keidan; Editing by Jane Merriman