FCA ‘concerned’ at investors’ ‘tick-box’ culture over trading practices

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UK regulator the Financial Conduct Authority has criticised a “tick-box” culture at investment management companies, saying it will consider launching more detailed investigations unless it sees an improvement in the way fund managers gets trades done this year.

“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 watchdog said.

The FCA has been looking into the way trades are placed in financial markets for several years, keen to ensure that investors always seek the best deals from banks and other intermediaries with appropriate controls over risks.

After a review that found some instances of fund managers using dealing commissions to buy market data services and one-on-one meetings with company executives, the watchdog says today that:

We were concerned to find that most firms had failed to take on board the findings of our thematic review. The pace of change in improving client outcomes in best execution was slow, with few firms having a cohesive strategy for improving client outcomes.

Many firms had not conducted a robust gap analysis since 2014 and therefore much of the poor practice we outlined in our thematic review had not been addressed.

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. Sometimes they lacked access to the data used by the dealing team or they didn’t use data already available such as gifts and entertainment logs. This led to a ‘tick box’ monitoring process where failings were unlikely to be discovered.

The FCA plans to ask investment managers how they have tightened up in this area this year. “We will consider” investigations into firms and individuals without signs of improvement, it added.

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