UK fund groups to escape corporate access fines

Nov 04, 2013
<p>Financial regulator will not take action against funds that break corporate access rules</p>

The Financial Conduct Authority (FCA) says that although investment firms using client commissions to pay for corporate access are breaking UK rules, these funds will not face penalties.

Ed Harley, head of the FCA’s asset management division, says the regulator ‘found that a lot of firms were not putting enough attention on getting value for money,’ according to the Financial Times. This did not constitute a ‘blatant disregard for the rules in place’, however, and Harley adds that ‘[the FCA has] not felt the need to take strong action’.

The comments come a week after Martin Wheatley, FCA chief executive, told a conference that using client commissions to pay for corporate access ‘transfers the firm’s costs onto the client, which clearly works against the client’s interests’.

Criticizing the ‘bundled’ use of investor cash, Wheatley said: ‘Combining eligible with non-eligible services can disguise overpayments for eligible services. This cross-subsidizes services asset managers should pay for from their own funds. And, in turn, it sustains business models that would quickly fail under increased global competition.’

Contradicting Wheatley’s comments, the FT also quotes Will Amos, director of wholesale banking and investment management at the FCA, who says the corporate access scandal ‘is not a case where there is a clear detriment to investors’.

‘There is no enforcement action at the moment,’ Amos says. ‘We saw some things that didn’t appear to be consistent with the rules, [and] our response has been to clarify what those rules are. We want to be predictable as a regulator.’

Not everyone agrees with the soft stance taken by the regulator, however. ‘I can’t believe the FCA has the right not to take enforcement action if it has found wrongdoing,’ says Alan MacDougall, managing director of corporate governance adviser PIRC, in the same paper. ‘Our view is that [it has] an obligation to do that. Obviously it needs very firm evidence, [but that] should be available in the public domain.’

Up to £500 mn ($800 mn) of dealing commission was spent on access to top management last year, the FCA estimates. According to research carried out for FTfm, a move to end the practice ‘could cut industry-wide profits by a quarter,’ says the FT.

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