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Conflicts of interest are one of the FCA’s primary conduct concerns for asset managers. The regulator demands firms identify conflicts early, manage them transparently, document decisions thoroughly, and maintain effective, real-world governance. This is especially critical in asset management, where firms invest on behalf of clients and must prioritize their clients’ interests.
A well-known FCA enforcement action shows what happens when controls break down. In March 2022, the FCA fined GAM International Management Limited £9,103,523 for failing to conduct its business with due care and diligence and to adequately manage conflicts of interest. The FCA also fined former investment director Timothy Haywood £230,037. The case centered on failures in conflict management around specific transactions, weak governance, and unrecorded gifts and entertainment.
In asset management, a conflict of interest arises when a firm, its employees, or a group of clients has interests that compete with the duty owed to clients. That can include conflicts between the firm and its customers, between employees and customers, or between different customers.
These conflicts matter because asset managers act as agents for clients. If unrecognized or mishandled, conflicts risk influencing investment, allocation, disclosure, or oversight decisions based on improper considerations. The FCA’s GAM action directly affirms that conflicts must not interfere with a firm’s customer obligations.
The FCA regards conflict management as integral to strong governance and fair client treatment. Simply having a policy stating conflicts will be managed is insufficient. Firms require a practical framework to identify risks, escalate them to appropriate parties, document reviews, and demonstrate the rationale behind decisions.
In the GAM case, the FCA found the firm failed to manage conflicts from three transactions. Incentives that could benefit the firm or its parent were not reviewed by the proper people, and relevant policies were not followed.
For asset managers, the lesson from the GAM case is clear: a conflict that is not properly reviewed can call into question whether investment decisions were made in the client’s best interests—even when the regulator does not prove misconduct.
Pro Tip- A conflict framework should be designed to answer one practical question every time: who reviewed the issue, what was considered, and how was the client’s interest protected?
The FCA grounds its expectations in its Principles for Businesses and broader conduct framework. In the GAM case, the FCA found that the firm breached Principle 2 and Principle 8. The FCA press release states that Principle 2 addresses when a firm does not conduct business with due care and diligence, while Principle 8 addresses when a firm fails to manage conflicts of interest adequately.
In practice, the FCA expects firms to have:
Conflicts need visible ownership, oversight, and escalation. A committee structure can help, but only if it is actually used and understood across the firm.
Policies should explain how conflicts are identified, escalated, reviewed, documented, and disclosed where appropriate.
Controls should cover areas such as investment decisions, gifts and entertainment, personal account dealing, outside business interests, and firm-client conflicts.
It should be possible to show what diligence was performed, what discussions took place, what approvals were obtained, and the basis of the decision.
The GAM enforcement action illustrates the types of failures that attract focused FCA scrutiny.
The FCA determined the conflicts committee failed to meet as required and did not take a central role in managing and overseeing conflicts of interest.
The firm failed to escalate relevant conflict issues to the conflicts officer, the committee, the board, or compliance for consideration.
The FCA observed that the board discussed conflicts only to a limited extent and reported that third-line audit review occurred only to a very limited degree during the relevant period.
The FCA said the firm failed to follow documented processes to consider conflicts of interest and did not adequately document due diligence or record credit analysis for the investments in question.
The former investment director accepted gifts and entertainment, including travel on a private aircraft, but did not promptly record them. The FCA said this heightened the risk of potential conflict, even though it did not find evidence that the gifts caused specific investment decisions.
Pro Tip- Conflicts become harder to defend not because policies are lacking, but because review and escalation documentation are incomplete.
Conflicts do not have to result in proven misconduct to create regulatory risk. In many cases, the issue is that a conflict could have influenced judgment, or that the firm cannot evidence that the risk was reviewed and controlled appropriately.
That is one reason the FCA took gifts and entertainment seriously. In the GAM case, the regulator did not conclude that the individual made investment decisions due to benefits received. However, untimely disclosure and poor recordkeeping were still considered serious because they increased the risk that personal interests could affect client-focused decisions.
For firms, this means conflicts analysis should not be limited to actual misconduct. It also needs to cover situations where incentives, relationships, or benefits could reasonably cast doubt on impartial decision-making.
A conflicts of interest committee can be useful, but only if it has real authority and a clear operating model.
The committee should know which conflict types it reviews, when matters must be escalated, and what authority it has to approve, challenge, or reject a proposed course of action.
There should be clear ownership across the front office, compliance, legal, and senior management. If responsibility is shared vaguely, escalation often fails.
A committee that rarely meets, or only meets after problems emerge, is unlikely to be effective.
Matters escalated to the committee should include the facts, the nature of the conflict, the due diligence completed, the alternatives considered, and the recommended action.
Committee decisions should result in recorded actions, follow-up requirements, and, where relevant, disclosure or monitoring steps.
Pro Tip- A COI committee should be part of the decision-making process, not one that only receives updates after the fact.
One of the most significant weaknesses in the FCA action was insufficient documentation. A robust conflict process should clarify and demonstrate due diligence.
Good practice usually includes:
The file should show why the investment was considered suitable and how client interests were evaluated.
If a conflict exists or may exist, the analysis should explain the nature of the conflict, who reviewed it, and what mitigation was applied.
Where credit quality or financial condition is relevant, firms should retain a clear record of the analysis performed, not just the conclusion.
A defensible file records approvals, challenges, questions raised, and how concerns were resolved.
The original case involved the older Approved Persons Regime. The FCA press release states that Timothy Haywood was found to have breached Statement of Principle 7 and that his case was handled under the framework that applied to him at the time.
Today, most FCA-regulated firms operate under the Senior Managers and Certification Regime, which places greater emphasis on accountability, clearly allocated responsibilities, and compliance with conduct rules. That means firms reviewing older enforcement actions should not assume they can rely on older governance habits. The current environment places even more emphasis on role clarity, escalation, and evidence that responsible individuals took reasonable steps.
Pro Tip- When using historic enforcement actions for training, translate the lessons into today’s SMCR accountability model rather than treating them as older-regime issues.
The FCA’s action against GAM International Management and its former investment director remains a useful reminder that conflicts-of-interest failures are rarely about a single isolated problem. They usually reflect a broader weakness in governance, escalation, documentation, and control discipline.
For asset managers, the standard is straightforward. Firms need to identify conflicts early, review them through the right governance channels, document their diligence carefully, and show that client interests remained central throughout the decision process. Where any of those steps are weak, the regulatory risk increases quickly.
Conflicts of interest in asset management arise when a firm, its employees, or one group of clients has interests that could compete with the duty owed to clients. This can include firm-client conflicts, employee-client conflicts, or conflicts between different clients.
It matters because asset managers make investment decisions on behalf of clients and are expected to act in those clients’ best interests. The FCA has said that conflicts should not interfere with firms’ obligations to customers and has taken enforcement action where governance and controls were not strong enough.
The FCA expects firms to have effective governance, clear escalation paths, documented policies and procedures, working controls, and strong evidence that conflicts were identified, reviewed, and managed fairly. In the GAM action, the FCA found breaches of Principle 2 and Principle 8 linked to weak systems and controls and inadequate conflict management.
Common failures include weak committee oversight, poor escalation, limited board attention, inadequate due diligence records, incomplete credit analysis, and failures to record gifts and entertainment properly. These were all themes identified in the FCA’s GAM enforcement action.
Conflicts can create a risk that investment decisions are influenced, or appear to be influenced, by factors other than the client’s best interests. Even where the FCA does not find that a decision was actually swayed, weak disclosure, poor recordkeeping, or unmanaged incentives can still create serious regulatory concerns.
A Conflicts of Interest Committee should take an active role in reviewing, challenging, and overseeing conflict matters, not simply receive updates after decisions have already been made. The FCA criticized the lack of central committee oversight in the GAM case.
Documentation helps firms show what conflict was identified, who reviewed it, what diligence was performed, what challenge took place, and how the final decision was reached. Without that record, it becomes harder to demonstrate that client interests were protected.
Gifts and entertainment can create actual or perceived incentives that interfere with impartial judgment. The FCA fined the individual in the GAM case for failing to record gifts and entertainment properly, even though it did not find that those benefits directly drove specific investment decisions.
