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How firms ensure fund managers don’t break rules

How firms ensure fund managers don’t break rules

The departure of star manager Philip Rodrigs from River & Mercantile due to ‘conduct issues’ last week came as a shock.

While mystery surrounds the circumstances of his departure, it raises the question, how do asset management firms maintain good conduct?

Rodrigs (pictured) was fired after conduct ‘incompatible with River & Mercantile’s standards’ was identified as a result of improved systems and controls. The upgrade was implemented following a Financial Conduct Authority (FCA) investigation which resulted in the regulator alleging that the company, along with three others – Artemis Investment Management, Hargreave Hale and Newton Investment Management – may have broken competition law. The whole funds industry will be watching how events unfold with interest.

A company-wide focus on conduct issues to ensure it is part of the culture is key, according to Karen Zachary, chief operating officer at Crux Asset Management.

She stressed the process for maintaining good conduct should be similar across the whole company. 

‘We don’t consider conduct in a different way between say a marketing person or portfolio manager, although we would of course expect them to understand these issues on a client and product level,’ she said.

‘As a small firm we would generally apply the same training framework, as well as the same policy reviews across the firm.

‘We believe that conduct should be standard across the firm and driven from the management down. Management have to lead by example and people in the senior management position must follow the rules in everything that they do,’ she added.

Enforcement

Her views were echoed by Fidelity International, where employees are required to read and acknowledge its Code of Conduct policy annually.

As part of their employment contract, staff members agree that they will abide by it and any related policies.

A spokesperson explained: ‘The code is a statement of our commitment to integrity and high ethical standards in all that we do as Fidelity International. It provides a framework and defines a minimum standard of conduct that we expect from all our employees.

‘Failure to adhere to the code, or any other Fidelity policy, could result in a full range of disciplinary sanctions, including potential termination of employment.’

The process of annually reviewing and signing the code of conduct rather than just at the point of employment means that these issues are internalised, Zachary pointed out.

‘Regular training and getting specific people to look at complicated rules such as personal account dealing are crucial, but overall each of our employees must affirm that at least once a year they have read the compliance manual,’ she said.

To make sure all employees are up to date, Zachary explained, the company regularly holds compulsory training sessions on new regulation and rule changes.

The same understanding of Crux’s code of conduct is required from new employees and is included in the induction training process.

Jupiter Asset Management also places training at the centre.

A spokesperson for the company said: ‘At Jupiter we conduct thorough training for all our people managers, and regularly review and update our policies to ensure that both managers and employees are
not only aware of their responsibilities towards others, but also feel empowered
to report any concerns in the knowledge that these will be taken seriously, and escalated appropriately.’

Last year, the regulator announced that it would use investigations as a tool for assessing whether anything suspicious may have taken place, implementing a decision-making framework to identify where harm is potentially occurring.

While the move is designed to help the FCA monitor good practice, catch wrong doings early and improve culture and governance by placing accountability on individuals, it also means that more investigations will be opened.

According to Zachary, a visit from the FCA is now being considered by many like a ‘knock from the food standards agency for a restaurant’.

‘We review our policies each year and last year we brought in an external consultant to help us run the review because we had grown quite substantially during 2017 and our product range had also expanded,’ she said.

‘I was very conscious that we could now be subjected to a little visit and wanted to, for example, make sure that all of our processes for logging gifts and entertaining were air tight.’  

FIVE QUESTIONS TO MANAGE CONDUCT RISK

 

1. What proactive steps do you take to identify conduct risks in your business?

2. How do you encourage people in front, middle, back office, control and support functions to feel responsible for managing conduct?

3. What support do you put in place to help your people improve the conduct of their business or function?

4. How do your board and executive committee get oversight of conduct in your organisation? And how do you bring it into your discussions?

5. Have you looked at whether there are any business activities you’re engaged in that undermine your work to improve conduct?

 

Megan Butler, executive director of supervision – investment, wholesale and specialists, at the FCA

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