Platforms attempting to dodge the cash rebate ban by paying consumers units in a cash fund would be acting in an 'incredibly foolish' manner and going against the spirit of the rules, Fidelity has warned.
The regulator has already banned cash rebates from April this year, although it allowed unit rebates to continue - albeit now with an additional tax levied by HM Revenue & Customs.
Yesterday the Financial Conduct Authority (FCA) provided further details on how platforms can pay rebates to consumers, following calls for clarity from the Tax Incentivised Savings Association (Tisa).
The FCA confirmed that unit rebates do not have to be paid in to the same fund that the rebate originated from.
"The rules do not require rebates to be paid into the same fund, but the rebate has to be paid in units," a spokeswoman confirmed to Investment Week.
"The cash has to be used buy more units, it cannot be paid to the client."
Some in the industry suggested the latest comments from the FCA means platforms could side-step the cash rebate ban by paying clients units in a cash fund.
Risking regulatory wrath
However, Ed Dymott (pictured), head of business development and strategy at Fidelity Worldwide Investment, warned any platform attempting to operate in this way risked incurring the wrath of the regulator.
"We have seen some people suggest that this provides a loophole, which could be used to continue to generate cash rebates," Dymott said.
"We believe this would be incredibly foolish for any platform to use this as an opportunity to try and get round the rules. We are using elements of the flexibility being provided, but we will absolutely follow the direction set out by the FCA, ensuring that rebates are not being used to in a way which can create a bias or conflict of interest."
Dymott added the flexibility the FCA had provided is welcome.
"They have really understood the operational complexity in implementing these new rules, and therefore we believe this clarification will help deliver a more efficient and effective solution for our customers."
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