Senior employees of investment banks with operations in the UK will have to put their names to declarations that their companies are not offering biased research and will be held personally responsible if that is not the case, the Financial Services Authority warned yesterday.
Under the latest proposals unveiled by the City's regulator to stamp out conflicts of interest, investment banks will have to publish a document laying out their policy for dealing with the problem. The FSA wants to see undertakings that analysts will not be involved in roadshows for initial public offerings and marketing pitches for clients.
The regulator hopes separating research departments from the part of the banks offering services such as corporate advice will mean investors using the research will feel confident it has not been tainted by other connections the bank may have.
The FSA is also pressing for analysts' salaries not to be connected with revenues the bank earns from other services, again so they do not feel tempted to write research which is inappropriately positive in a company ahead of a big deal the bank is trying to do on its behalf.
The regulator alerted the City to its plan to crack down on irregular practices in February. This followed the high-profile campaign in America by Eliot Spitzer, New York Attorney General, to stop abuses such as allocating favoured clients shares in popular IPOs and publishing glowing research in companies when analysts privately thought the stocks were poor quality. Mr Spitzer forced a group of leading international banks to hand over $1.4bn (£820m) in compensation to resolve the investigation earlier this year. Sir Howard Davies, who has just stepped down as chairman of the FSA, said London has been "spared the worst of the abusive practices" seen on Wall Street, but added that there was "evidence of systematic bias by analysts".
The FSA plans to implement its proposals next summer, following final consultation between now and Christmas. If it goes through, the FSA hopes it will effectively introduce a new category of independent research, offered by banks which have published a detailed document laying out their procedures to guard against conflicts.
Separately, the body in charge of regulating the FSA said it needed to improve the way it deals with complaints from investors. Rosemary Radcliffe, the Complaints Commissioner, said consumers are often faced with a "bureaucratic jigsaw".