UK regulator to crack down on corporate access payments

FSA analysis of 15 asset managers finds large payments that are ‘hard to justify’

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The UK’s Financial Services Authority (FSA) has ‘raised the prospect’ of multimillion pound fines for fund managers as the regulator prepares to crack down on corporate access payments, according to a report in the Financial Times.

Ed Harley, head of asset management supervision at the FSA, told the newspaper that an analysis by the regulator of 15 asset managers revealed payments that are ‘hard to justify’. He added that most of these payments are for corporate access, while some smaller sums are for market data.

‘There is an awful lot of clients’ money being used here and it has to be used properly,’ Harley says in the FT interview, noting that the rules state clearly that client commissions can be used only for trade execution and research. ‘When we challenged the firms as to how they can justify [payments for corporate access], they couldn’t give us a coherent answer that met those criteria.’

The practice of paying for access to senior executives has come under increasing scrutiny in recent months. In November last year the FSA issued a letter expressing concern to asset managers over potential conflicts of interest created by ‘inadequate’ controls over spending on research and execution services.

A Thomson Reuters Extel survey for 2012 shows that 29 percent of dealing commissions were devoted to gaining corporate access last year, an increase from 27 percent in 2011 and 21 percent in 2010.

The UK’s Investment Management Association, which represents asset managers, said in February that it ‘expects during 2013 to propose changes to address the engagement issue, and any barriers put up by issuers and their corporate advisers, and also the pricing and unbundling of research.’

In its report, the FT quotes an unidentified ‘senior figure at a large UK asset manager’ as saying the common practice of paying for corporate access would now stop.

‘This is how the investment banks and the buy side have always operated,’ the asset manager told the FT. ‘But what we are going to find going forward, and it will happen quite quickly, is a lot of asset managers are going to say, Do you know what? We are not going to pay for this access anymore. Big firms would assume they ought to continue to have access to companies. Small fund managers will end up not having access. Is that in the interests of companies? Possibly not.’