Firms will be required to publish and implement their policies by 1 July 2004. Each firm's policy will have to make clear which of the material it produces it considers to be objective research. Firms will need to have measures that ensure their analysts impartiality and these measures will need to be clearly set out in the policy statement. Without such policies, firms will not be allowed to claim or imply that their research was objective.
Commenting on the new rules, Christina Sinclair, Head of Business Standards Department, said: "Senior managers are responsible for managing conflicts of interest within their firms. These proposals clarify how we expect firms issuing investment research to conduct themselves. Our objective is to improve confidence in the integrity of financial markets. Our requirements recognise that conflicts can affect investment research on products and markets beyond equity securities and include fixed income. But they are flexible framework requirements, which can be implemented across a broad range of firms with different business models, in a variety of markets, to ensure that analysts' objectivity is not compromised. This framework, with its principles-based approach will stand the test of time."
The new proposals have been refined slightly from the proposals in CP205 to clarify the regulatory intent. These measures will focus firms' attention on the real conflicts and how they are perceived. These refinements reflect comments made during the last consultation. Firms are responding to the growing international focus on conflicts management generally, and the revised Investment Services Directive will bring in provisions that will oblige them to manage conflicts across the whole of their business.
The FSA is now changing gear to ensure the new rules are implemented and that senior management take their responsibilities seriously. This will involve working with firms and trade associations in the development of their approach, and in instances where we see that firms are not properly recognising and managing their conflicts of interest, we shall be ready to intervene.
Background
- Previous consultations on this topic are: DP 15 in July 2002; CP 171 in February 2003 and CP 205 in October 2003.
- CP 205 finalised the standards of conflict management and consulted on the manner of implementation of these standards. Consultation finished on the 24th December 2003.
- IOSCO published its set of principles in September 2003. Their report is available here. The principles in CP205 are consistent with the core standards of the IOSCO principles as well as the standards applicable in the US.
- The FSA set out in its business plan several objectives to be achieved this year. Establishing standards for objective research was one of those.
- 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 for consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
