Watchdog steps up 'market timing' inquiry

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The Independent Online

The Financial Services Authority yesterday instructed 25 chief executives from Britain's largest fund management companies to set up internal investigations to check whether there was evidence that employees had engaged in controversial market practices.

Callum McCarthy, the chairman of the FSA, told the senior executives they had to take "personal and direct responsibility for ensuring there is a proper review of past trading practices". He said they must inform the watchdog immediately if they find members of staff had used so-called market timing or late trading to boost their own profits.

The FSA said it has already started interviewing fund managers in this country, after a high-profile campaign to crack down on the practices in the United States. "So far we cannot conclude that the abuses are not a feature of the UK system," Mr McCarthy said.

Fund managers in the US are currently in the spotlight after Eliot Spitzer, New York's attorney general, turned his attentions to cracking down on companies that have indulged in questionable trading.

The Anglo-American giant Amvescap is among a number of companies being sued by Mr Spitzer over market-timing abuses, which have the effect of penalising long-term, often private, investors in favour of hedge funds and other professional money managers. Mr McCarthy said the FSA's actions were not being dictated by the drive in the US to clean up the fund management industry. But he added: "We are bound to ask whether there is scope for consumers to suffer detriment in the UK as a result of similar practices."

The increasingly tough stance of the UK watchdog could be highly damaging for fund managers' business. Putnam Investments in the US has lost Unilever (among others) as a client because of its involvement in the inquiry by Mr Spitzer. Amvescap's shares are down 14 per cent since November on fears it could also see clients walk out of the door.

The FSA has until now held back from following the campaign across the Atlantic. Mr Spitzer forced a group of banks to hand over $1.4bn in compensation earlier this year after unearthing details of how analysts issued glowing research notes in companies they were privately rubbishing and how favoured clients received shares in hot IPOs.

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