On March 3, the UK Financial Conduct Authority (FCA) published a Press Release in which it expresses concern about how investment managers are failing to ensure effective oversight of best execution.

The FCA’s concerns include:

  • poor practices not being addressed despite the FCA’s 2014 thematic review on the topic;
  • poor use of management information on execution costs and an inability to show any improvement to execution process based on cost data, resulting in ‘box ticking’; and
  • compliance staff not being empowered to effectively challenge execution quality.

Despite this, the FCA also did see some good practice in firms, where best execution was considered throughout the investment decision making process, and not just by the dealing desk. The FCA states that firms with good practice had an effective governance process in place that challenged the overall costs of execution, renegotiated commissions and identified trends that helped improve future execution, which fed into a high-level trading strategy.

The FCA states that it will revisit best execution issues in 2017 to see what steps investment management firms have taken to assess gaps in their approach to achieving best execution and how they can show that funds and client portfolios are not paying too much for execution. If the FCA finds that firms are still not fulfilling their best execution obligations, it will consider appropriate action, including more detailed investigations into specific firms, individuals or practices.

The Press Release is available here.