UK regulator proposes dealing commission shakeup

Nov 27, 2013
<p>FCA launches consultation to regulate the use of dealing commissions in paying for research services&nbsp;</p>

The Financial Conduct Authority (FCA) will consult investors and asset managers in order to finalize improvements to rules and guidance about how investment managers use dealing commissions.

In light of a discussion started by the UK regulator’s CEO, Martin Wheatley, the FCA hopes to define guidelines that will allow investment managers to make ‘appropriate judgments’ and control costs to clients when using dealing commission to pay for sell-side services.

The consultation paper, titled Use of dealing commission, will ask respondents to consider whether wider reforms are needed in the FCA’s current set of rules in light of potential changes to EU law.

The paper’s main proposals include a call for the clarification of criteria for research services that can be paid for with dealing commission, further defining ‘corporate access’ and how it can be paid for, and guidance on paying for mixed-use assessments that may include research elements.

Wheatley says that the regulator needs to be ‘confident that mangers are putting their clients’ value for money, good returns, and transparency’ at the core of what they do, and that any rule changes will promote this.

‘Today’s consultation is part of a wider debate on the need to reform the use of the dealing regime, particularly the use of dealing commissions, and how industry practice can be improved now to the benefit of all,’ he adds.

‘As a forward-looking regulator, we expect firms to exercise judgment to act in the best interest of their clients – seeking to manage their clients’ costs as effectively as they pursue investment returns.’

Earlier this month, Ed Harley – head of the FCA’s asset management decision – noted that many firms were breaking rules about using commissions to pay for corporate access. He conceded, however, that these actions did not constitute a ‘blatant disregard for the rules in place’, and added that the FCA was unlikely to take strong action against such individuals or firms.

The FCA has requested all comments and answers to the consultation by February 25, 2014, with a policy statement set to be published the following spring.

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