Fund groups that have broken rules on corporate access will not be punished by the UK regulator, despite having acted against clients’ best interests.
The Financial Conduct Authority has acknowledged that investment companies have broken UK rules by using client commissions to pay brokers to arrange meetings with company executives. But there will be no penalties for companies found to have breached regulations.
Ed Harley, head of the FCA’s asset management division, said the regulator had “found that a lot of firms were not putting enough attention on getting value for money”. But he said this did not constitute a “blatant disregard for the rules in place” [and] “we have not felt the need to take strong action”.
However, Martin Wheatley, FCA chief executive, told delegates at a conference last week that paying for corporate access with client commissions “transfers the firm’s costs to the client, which clearly works against clients’ interests”.
The watchdog estimated that up to £500m of dealing commission was spent on facilitating corporate access last year. But contrary to Mr Wheatley’s comments, Will Amos, director of wholesale banking and investment management at the FCA, said the corporate access scandal “is not a case where there is a clear detriment to investors”.
“There is no enforcement action at the moment. We saw some things that didn’t appear to be consistent with the rules, [and] our response to that has been to clarify what those rules are. We want to be predictable as a regulator,” he said.
Enforcement action can entail fining companies or individuals, withdrawing a company’s authorisation, banning individuals from carrying out regulated activities or undertaking criminal prosecutions.
The regulator’s soft stance on asset managers that have misused client commission has surprised some market participants.
Alan MacDougall, managing director of Pirc, the corporate governance adviser, said: “I can’t believe the FCA has the right not to take enforcement action if they have found wrongdoing. Our view is that [it has] an obligation to do that. Obviously they need very firm evidence, [but that] should be available in the public domain.”