UK out of Step on Conflicts of Interest

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Byline: Sophie Brodie

The FSA has decided not to fall in line with US regulators by applying its conflict of interest rules to equity and non-equity research.In its consultation paper 205, the regulator has rejected suggestions that different types of research should be treated separately, saying: "We do not see a workable distinction to be drawn between instruments where conflicts can never arise and those where they can."

US banks adopted conflict of interest measures earlier this year as part of their $1.4bn ([euro]1.2bn) global settlement with US regulators. However, the rules only apply to equity research because few US retail investors have access to fixed-income analysis.

Banks have also argued that the FSA's earlier proposals on the issue, CP 171, were out of step with other regulators, despite the watchdog's reference to principles drawn up by the International Organisation of Securities Commissioners (Iosco). European banks, in particular, could be caught between the UK's approach to conflicts and that of the European Union. The latter set up a forum Tto look into conflicts of interests involving analysts last November. In a report last month, it advised against a ban on analysts attending IPO roadshows. The FSA favours preventing research staff from attending them.

In response to concerns about harmonised regulation, the FSA said: "Consistency does not mean uniformity. We are aware that this means firms operating across boundaries have to implement more than one set of detailed requirements."

However, the regulator has delayed setting out rules for disclosure of issuer relationships and analyst recommendations in anticipation of the European Union's Market Services Directive, which is due to be implemented next year. …