Asset managers failing to oversee best execution, says FCA

FCA urges buy-side firms to implement strategies to ensure best execution is monitored efficiently.

The pace of change in improving client outcomes for best execution has been slow and few firms have a cohesive strategy in place, the Financial Conduct Authority (FCA) has said. 

The regulator expressed concerns on the oversight of best execution and stated it expects all firms to be aware of best execution monitoring.

“We found instances where compliance staff were not empowered by senior management in order to provide effective challenge to the front office on execution quality,” the FCA said.

Best execution monitoring in equities saw some improvements where firms were focusing on decreasing the cost of trading by using low cost trading venues, but monitoring in fixed income was “less sophisticated”.

“We recognise there are particular challenges for this asset class, but some firms have been more proactive in how they meet their obligations than others.

“This highlights that meaningful steps can be undertaken to ensure best execution even in less transparent markets,” the FCA added.

Data management also remains an issue for best execution, with firms who were visited by the FCA using inconsistent information and s failing to provide evidence for improvement.

Buy-side firms have been urged to consider whether they have a comprehensive strategy in place, which should include the testing of funds and client portfolios to ensure they aren’t paying too much and ensuring the execution policies accurately reflect business models.

The FCA will revisit best execution this year to see what steps investment management firms have taken to assess best execution.

The regulator warned: “If we find that firms are still not fulfilling their best execution obligations, we will consider appropriate action, including more detailed investigations into specific firms, individuals or practices.”