UK buy-side trade body the Investment Management Association (IMA) has published a paper to guide institutional investors through corporate access rules in response to efforts from the regulator to separate out different broker services
The core issue in using dealing commissions to pay for corporate access is its classification as research, a point the Financial Services Authority (FSA) has sought to clarify through attestation letters. CEOs of UK asset managers must reply to the letter by 28 February stating that their firm abides by the current rules.
Buy-side firms looking to pay for corporate access through dealing commissions or commission sharing agreements (CSAs) risk infringing FSA rules if these services do not include direct broker research.
While the push for a clearer separation of broker services – execution, research and corporate access – is in line with wider efforts to make the financial ecosystem more transparent, smaller buy-side firms risk losing a key service provided by brokers to meet with corporate managers of firms they wish to invest in.
Guy Sears, director of institutional at the IMA, who helped author the paper, has called for wider debate on how corporate access is arranged and priced.
“Corporate access for buy-side firms overseas can reflect sheer commercial size – if you’re a large asset manager an issuing corporate firm will welcome a meeting, but for smaller buy-side firms they need brokers to provide access,” he commented. In the short-term, however, Sears said buy-side firms must ensure they meet the FSA rules.
The IMA paper sets out a number of scenarios whereby corporate access is not classed as research and as such cannot be paid for from dealing commissions.
“There are so many component activities that can fall under the heading of corporate access that buy- and sell-side firms need to unpack the details and look at exactly what is occurring and check it is classed as research according to the FSA rules,” Sears said.
In November, the FSA published a damning report on broker services, claiming only two out of 15 asset managers randomly assessed complied with current FSA rules on conflicts of interest.