Investment banks shrug shoulders at UK compliance deadline

As many as four out of five investment banks in the UK face missing an upcoming regulatory deadline because they are failing to implement proper processes which would allow them to prove their research isn't biased.

A survey of 308 institutions has shown 79 per cent have no interest in putting in place a strategy to satisfy a Financial Services Authority (FSA) deadline of 1 July covering conflict of interest. Nine per cent said they are not yet compliant but want to get their house in order.

High-profile cases in the US, such as the prosecution of former CSFB banker Frank Quattrone last month, often spearheaded by New York state attorney-general Eliot Spitzer, have highlighted the need for no conflict of interest in the case of those researching companies and recommending investments.

A representative of one international investment bank based in London that has tackled this type of compliance told silicon.com: "It's a gamble to think you can bluff your way out of this. Some quite staggering fines can come out of the FSA. And remember, they're likely to try to make an example out of the first case they tackle."

The 1 July deadline means banks must have the IT and processes in place to make clear that their research is objective. This includes information on firms, individual analysts and their immediate family. For example, they should have a system in place to know when there is conflict between one part of a bank recommending buying stock in a company while another is carrying out an acquisition for it, or when a lead analyst is married to someone at a company she covers.

The research was carried on behalf of UK-based Blue Curve, which provides technology for research processes. Its CEO, Mark Robertson, said many investment banks don't appreciate what the new regulations will mean.

"There's a lot of confusion out there and a perception that the FSA doesn't have sharp teeth," he said. "But now that individual directors can be held responsible I'm increasingly going in to meetings not just with CIOs and compliance officers but with CEOs too."

Given the panoply of regulations that are confronting financial services firms around the world, many are now taking a 'worst case scenario' approach, getting IT and processes in line with the rules of the strictest jurisdictions in which they operate.