FCA proposes new rules on dealing commission for investment managers

The consultation forms part of a wider discussion launched by FCA CEO Martin Wheatley at the FCA Asset Management Conference in October 2013, to consider the potential for wider reforms to address flaws in the use of the dealing commission regime in light of potential EU reforms in this area and a growing consensus in the industry that existing practices can be improved. The FCA will continue this open discussion on the potential need for wider reforms, alongside this consultation on more immediate improvements to the existing rules.

Martin Wheatley, CEO of the FCA, said:

"We need to be confident that managers are putting their clients’ value for money, good returns, and transparency at the heart of how they do business. So 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.

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

The proposals are designed to ensure investment managers make appropriate judgments and seek to control costs to clients when using dealing commission to pay for research goods and services. The main proposals that will be consulted on include:

• Clarifying the criteria for research goods and services that can be purchased by investment managers with dealing commission paid from customers’ funds;
• Defining ‘corporate access’ and providing guidance on how investment managers should treat corporate access under the use of dealing commission rules; and
• Guidance on making mixed-use assessments where investment managers purchase bundled brokerage services that contain both research and non-research elements, to ensure that only research is paid for with dealing commission.

Asset managers are a key part of the UK financial sector, investing over £5 trillion on behalf of their clients. The FCA estimates that last year, the industry generated over £3 billion in dealing commission – of which around £1.5 billion was spent on research.  However, it is not clear that all the research commissioned offered good value to clients, or would have been commissioned if investments managers had to pay for them using their own funds.

By providing greater clarity over the services which can be purchased using dealing commission, these measures will secure better consumer protection and promote market integrity, in line with the FCA’s objectives. 

The FCA will engage closely with investors and asset managers throughout the 3 month consultation period, and expects to finalise new rules in Q2 2014.

Notes to Editors

1. The consultation paper[1].
2. Martin’s Wheatley’s speech at the asset management conference[2] (30 October 2013).
3. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
5. Find out more information about the FCA, as well as how it is different to the PRA.