21 March 2019 - Article
The FCA has published a Consultation Paper (CP13/17) on the use of dealing commission rules for investment managers. The proposals form part of the FCA wider discussion about transparency in the asset management sector and corporate access (see for example above in its concerns about integrity). They should be read by both investment managers who are subject to the dealing commission rules, and sell-side suppliers of bundled brokerage arrangements, who are within the scope of the FCA’s wider thematic review of such arrangements (see below).
CP13/17 proposes to make the following changes to its Conduct of Business sourcebook (COBS):
- defining corporate access and adding it to the list of examples of goods and services that relate to the execution of trades or the provision of research that are not exempt, and so cannot be paid for from dealing commission (i.e., charges paid for executing trades and related services).
- Amending the drafting and effect of the provisions under COBS 11.6.4E and COBS 11.6.5E so that charging goods and services to dealing commission that do not meet the criteria will tend to establish non-compliance with dealing commission rules. The aim is to clarify the perimeter of the regime by introducing a presumption of a breach of the rules if the cumulative criteria are not met and address other practices that the FCA is concerned about (such as, the purchase of raw data feeds, translation services, and preferential access to IPOs) and others that might emerge in the future.
- Providing clarification in a new guidance provision (COBS 11.6.8AG) on how investment managers might approach judgments around their duty to act in the customer’s best interests and passing charges to the customer through dealing commission for goods and services that meet the exemption in COBS 11.6.3R(2). It also clarifies the FCA’s expectations around making mixed-use assessments where substantive research is provided alongside another good or service that is not permitted to be paid for through the use of dealing commission.
Firms have until 25 February 2014 to make comments on the proposals. The FCA intends to publish a policy statement in spring 2014. The FCA is also carrying out thematic supervisory work focusing on use of dealing commission in both investment managers and investment banks, and will undertake selected firm visits in late 2013 and early 2014. Consequently, investment management firms should review their commission arrangements, and in particular, to the extent that corporate access or market data services are relevant.