He said, "We have received over 70 responses to our proposals. Most respondents accept that there needs to be an improvement in the way conflicts of interest are managed in investment banks. But there are differences of approach. Global firms are looking for consistency with the approach adopted in the US. Domestic firms tend to favour solutions in tune with the traditionally non-prescriptive UK approach. So the challenge for the FSA is to find a solution which will be effective in our markets, yet in line with international standards.
"IOSCO will shortly publish a statement of principles for addressing securities analysts' conflicts of interest, and CESR has given advice to the European Commission on the publication of research reports in connection with the Market Abuse Directive.
"The approach set out in CP171 is broadly consistent with those two sets of recommendations. We are likely to confirm the approach that senior management should take responsibility for the appropriate management of conflicts of interest. We expect firms not to allow analysts to attend pitches and road shows, or to allow their compensation to be influenced by investment banking interests. We also believe the case is made for some strengthening of the rules on dealing ahead and on personal account dealing. But in some areas, such as what is the definition of a research report, and the extension of these provisions to non-equity research, we are developing new proposals on which we shall consult further.
"On disclosures of track records and the like we plan to fold those proposals into the implementation of the Market Abuse Directive next year. We are mindful of the need to avoid consultation overload and to ensure that we work in line with forthcoming European legislation.
"On conflicts of interest that arise in connection with the issue of securities we will respond to firms' call for less prescription and look to senior management to deliver appropriate standards. All respondent firms agreed that spinning and laddering were unacceptable.
"In CP171 we said we were doing more work on the vexed question of "Friends and Family" allocations. Friends and Family can include customers or suppliers and sometimes unrelated parties who are given an allocation of shares. And those allocations are rarely scaled back as is the case for others in a hot issue.
"Our review of Friends and Family allocations has been completed. We now propose guidance to make it clear that such allocations cannot be used in connection with spinning or laddering. And we also believe that issuers should provide a description of any pre-determined preferential treatment to be accorded to certain classes of investors and to explain the percentage of the offer reserved for such preferential treatment and the criteria for inclusion. This will be entirely consistent with the CESR advice to the European Commission on technical measures to implement the Prospectus Directive. We believe that this disclosure will satisfy our concerns and do not propose to take any other action at this stage.
"In the areas where further consultation is needed, we shall bring forward proposals in the autumn."
Background
- The Annual dinner of the CBI in Scotland was held at Hilton Hotel in Glasgow.
CP 171 "Conflicts of Interest: Investment Research and Issues of Securities" was issued in February 2003. It set out the FSA's proposals on the future regulatory approach to conflicts of interest.
- IOSCO is the international organisation of securities commissions and comprises all international regulators that regulate the securities' markets. Further information can be obtained from their website www.iosco.org
- CESR is the Committee of European Securities Regulators and unites all the securities regulators within the European Union. One of its roles is to provides technical advice to the European Commission as required. Further information can be found on its website www.europefesco.org
- Friends and Family allocations are portions of newly issued shares that are allocated on a preferential basis to a specific group of investors.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
