The Financial Conduct Authority (FCA) has launched a consultation on proposed changes to the rules governing the use of dealing commission by fund managers, in particular how they pay for access to company CEOs.
Dealing commission - the charges paid by consumers for executing trades and related services - have come under scrutiny recently after the regulator highlighted flaws in the regime. It has drawn particular attention to how commission is used to buy access to meetings with senior executives at PLCs.
The FCA said last month it would be launching not only a thematic review, but also a co
Today, the FCA set out a number of areas it wants to investigate more closely, in order to make the system more "fair and transparent".
The three main areas under review are:
• 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 only research is paid for with dealing commission.
Martin Wheatley (pictured), CEO of the FCA, said: "We need to be confident 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 come after the FCA estimated last year, the industry generated over £3bn in dealing commission - of which around £1.5bn was spent on research.
However, the FCA said 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.
The FCA said, by providing greater clarity over the services which can be purchased using dealing commission, it should ensure better consumer protection and promote market integrity.
The regulator said it will engage closely with investors and asset managers throughout the three-month consultation period, and expects to finalise new rules in Q2 2014.
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