UK regulator the Financial Conduct Authority (FCA) has stopped short of proposing an outright ban on the use of client funds to pay for research, but has called for tougher controls by buy-side firms.
Publishing its consultation paper on the use of dealing commissions today, the FCA has outlined stricter rules on the way bundled dealing commissions are used to pay for research and has added corporate access to the list of services that cannot be paid for using commission paid from client money.
The consultation has called for investment managers to remain mindful that they must act in the best interests of their customers when using their funds to pay for execution and research services.
Furthermore, when goods or services are provided at a known cost, then the dealing commission charge should not be greater than this amount. When negotiating with the sell-side over what is paid for through dealing commission, asset managers should ensure they work in their customer’s best interests to reduce the cost where possible, the regulator said.
In addition, the FCA wants asset managers to ensure they disaggregate the cost of research when it is bundled with other services to ensure that any services / costs? that fall outside of the permitted use of client funds are paid for by the firm itself as part of its normal running costs.
The consultation paper follows a speech at the end of October by FCA CEO, Martin Wheatley, where he called on asset managers to seek better value from their research and said he wanted to create a more competitive research market.
The consultation proposals have stopped short of forcing asset managers to pay for research from their own funds, but do set much stricter rules on how client funds can be used.
The full consultation paper can be access on the FCA website here. Interested parties have until 25 February 2014 to submit their responses and the FCA will publish a policy statement in Spring 2014.