Software and services provider Blue Curve accuses investment banks of complacency by failing to ensure that their IT systems are in compliance with the Financial Services Authority’s (FSA) new conflict- of-interest legislation — despite a looming regulatory deadline.
The FSA has ruled that by July 1 investment banks must put in place a policy to govern conflicts of interest in investment research, and ensure that their systems, controls and procedures to implement the policy are robust and adequate to identify the conflicts which may occur.
To be compliant with these new rules, firms must ensure that adequate reporting and tracking software is in place to maintain a full record of their commercial activities in relation the subjects covered in their investment research.
Blue Curve believes that many investment banks in the City of London remain unable to provide the full audit trails required to ensure compliance with the impending legislation.
“It seems from the work and research we have done that many banks will fail to meet the deadline, or are unaware of the true implications of the new rules,” said Mark Robertson, managing director of Blue Curve. “The complacency we have detected is caused by firms not appreciating the full impact of the new regulations, and so not giving them the priority they require. But the banks face being perilously exposed.”
Robertson added, “Senior management must be confident that their systems can provide complete and accurate information on the true state of the firm’s — and the analyst’s — position at the time of publication of each piece of research. Plus they must keep those records for many years after publication.”
The FSA regulations ensure that firms will have to develop and publish policies to ensure that their research analysts do not compromise their objectivity in the future.
The final rules were announced in March and are an attempt to ensure that conflicts of interest that arise in the production of investment research are disclosed to clients in order to ensure objectivity, a spokesman for Blue Curve said.
The FSA’s legislation follows similar moves in the US, where New York Attorney General Eliot Spitzer has prompted industry reforms through investigations of mutual fund, insurance and stock research businesses.
“The FSA legislation has resulted in a regulatory minefield for the investment banking sector, and the only way to ensure compliance is to deploy standardized software so that organizations can be sure they won’t fall foul of the reporting elements of the legislation,” added Robertson.