FCA identifies poor practices at the majority of investment firms

In its latest review, the Financial Conduct Authority (FCA) identifies poor practices at a majority of investment firms it visited, with several not able to demonstrate meaningful improvements in terms of how they spend their customers’ money through their dealing commission arrangements.

At the extreme end, some continue to use dealing commissions to purchase non-permissible items, such as corporate access and market data services, contrary to FCA rules. Where breaches of FCA rules were identified, the FCA will consider further action, including referring firms for further investigation. The agency also finds some practices have improved since its previous work on this topic.

A few firms cover the cost of externally produced research from their own resources rather than using dealing commission, the FCA reveals. These firms take care to ensure the dealing commissions they continue to pay are for execution services only and paid at genuine execution-only rates.

The review has a warning note: ‘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. Despite some progress being made, much of the poor practice we’ve highlighted previously is still commonplace. This is concerning considering the majority of the rules on the use of dealing commission have been in place for more than a decade.

‘Firms that have paid closer scrutiny to this area have generally seen a reduction in the dealing commission they spend on research, which feeds directly into better investment performance for their consumers. Such improvements, if replicated across the market, will also help to enhance the attractiveness of the UK investment management sector for potential investors.’

John Gollifer, general manager at the UK’s Investor Relations Society, says: ‘We welcome this informative review of the asset management industry, the important end-audience of the corporate members of the IR Society, and we all support the principles of competition, value for money, consumer choice and transparency of pricing.’