Tuesday 18 October 2016 5:09 pm

Watchdog moves to quash misleading rankings in investment banking

The City watchdog has today proposed putting an end to misleading league tables used by banks looking to woo clients.

Publishing its final findings from its investment and corporate banking market study, the Financial Conduct Authority (FCA) noted it was not uncommon for banks to use league tables in pitches which inflated their performance, and added it would be working with the British Bankers' Association and the Association for Financial Markets in Europe to develop a set of industry guidelines for use of such rankings.

The FCA also took issue with initial public offering (IPO) allocations, pointing out these could sometimes be skewed in favour of buy-side investors, because these clients could provide banks with larger revenues in their other business lines. 

Read more: Who's responsible for greater transparency in equity crowdfunding?

The watchdog said it would work with those firms where problems with their allocations had been spotted, while it continues to look at how it could improve the IPO process.

"The universal banking model clearly works well for a wide range of participants but areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could," said Christopher Woolard, director of strategy and competition at the FCA. "We've developed a package of remedies designed to address these problems.

"This sends a signal that we expect firms to compete on the merits, not by restricting clients' choice on future transactions, drawing misleading comparisons with competitors’ performance, or exploiting conflicts of interest."

Read more: Pressure mounts on FCA to introduce overdraft cap

Charlie Hammon, competition counsel at Ashurst, said: "These proposals represent a 'light touch' intervention, but it remains to be seen whether they will bring material benefits for companies."