The Financial Services Authority has announced it will not make rules about the disclosure of commission arrangements for retail funds.
In September 2005 the FSA proposed an ‘investors’ representative’ should receive and consider any commission-related disclosures about retail funds – such as with-profits and unit-linked life funds – on investors’ behalf and interact with the fund manager where necessary.
The proposal resulted from the fact the FSA’s rules require the disclosure to be made to the fund itself or the firm operating it, and not the individual customers whose money is invested in the fund.
It was concerned commission spending out of retail funds might not receive proper consideration, either because of uncertainty over who should review the new disclosures or because of possible conflicts of interest where the fund is operated and marketed by the investment manager.
But following feedback it has decided it will not make rules in this area and, instead, will encourage and support an industry-led solution and will look to firms to demonstrate they are treating retail customers fairly.
In its feedback statement the FSA says: “We think it is desirable to continue, where possible, to resolve issues relating to softed and bundled services through initiatives led by the industry. We have also reconsidered out proposals in light of our public commitment to improve the regulation of financial services, as set out in out better regulation action plan.”
It believes it would not be proportionate to introduce new rules and guidance now and firms will therefore have an opportunity to demonstrate customers investing in retail funds are treated fairly where softed and bundled arrangements are paid for by the fund.
Dan Waters, FSA director of retail policy, says: “We still view the investors’ representative model as a potential solution but will allow firms to decide for themselves how best to achieve the outcome we want to see – namely, that the interests of retail fund investors are better served through more transparency and challenge on the use of fund assets to purchase research and execution services.”
The regulator will monitor developments over the next 18 months and will undertake a review in 2005 of the effectiveness of industry-led measures.
Trade associations – including the Investment Management Association (Ima), Depositary and Trustee Association (Data), the Association of British Insurers (ABI) and the Association of Investment Trust Companies (Aitc) – have agreed to consider how standards of good practice can be established.
Sheila Nicoll, deputy chief executive of the Ima, states: “We fully agree that it is important to have a mechanism in place for the independent oversight and review of commission disclosure of retail funds to complement that in place for pension funds. In keeping with principle-based regulation, we understand the FSA’s desire to apply for a market solution in this area, and agree that there is a need for independent oversight and regular review of commission arrangements.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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