Objectively speaking

28 October 2003 By Chris Hughes

The UK regulator is putting the onus on investment banks’ senior management to show that analysts’ research is untainted. While the FSA is also dictating some core standards, the emphasis on accountability and transparency is preferable to a rulebook.

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The UK Financial Services Authority proposed that investment banks draw up and publicise formal policies for managing conflicts of interest in the production of analyst research.

Such codes should tackle conflicts arising with research that the firm holds out as objective.

Within this discretionary framework, the regulator stipulated particular practices that it deemed unacceptable. These include a prohibition on someone supervising an analyst if their responsibilities conflict with the interests of the clients to whom the research is distributed. Analysts should not attend pitches for corporate business, or attend marketing roadshows. Analysts should not have their pay influenced by factors that might bias their research.

The FSA also moved to limit the situations in which firms can deal ahead of publishing investment research.

It said it had obtained evidence that some of the firms it regulates were involved in producing biased research, although this was not as widespread as had been the case in the US.

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