UK makes “market-based” soft commission proposal
UK – The UK’s financial services regulator has made a “market-based” proposal to deal with the issue of soft commissions.
The Financial Services Authority said it would “limit the scope” for soft commissions and the bundling to execution services and investment research. But it gave the industry a deadline of December for getting the issue “on track”.
It said: “This regulatory action will be complemented by a market-based initiative led by the Investment Management Association to develop an improved system of disclosure that clearly identifies charges for research.”
It added: “These measures will allow investors to make more informed decisions about services charged to fund assets by fund managers, and help to ensure that investment research and execution services are sourced in the interests of fund investors.”
It would assess in December whether the industry's work on “enhanced transparency and disclosure” was on track to achieve “desired outcomes”.
“If it is not then the FSA will consider what further regulatory action is necessary.”
"These measures will together help strengthen fund managers' accountability to their clients,” said Christina Sinclair, the FSA’s head of institutional business policy.
“If the industry fails to deliver a high quality and workable solution, we will reconsider the need for stronger regulatory intervention, which might include the rebating proposal set out in our consultation paper last year."
The IMA said it welcomed the decision and that it would now begin trials of an enhanced Pension Fund Disclosure Code to “bring about greater transparency as to the execution and other components of commission payments”.
It said: “The IMA fully intends to have made significant progress with this work in time for the FSA review at the end of 2004.”
“We have a full work programme with these initiatives, but are delighted that the FSA have given us the opportunity to demonstrate what can be achieved through market-led solutions,” said IMA chief executive Richard Saunders.
Gareth Jones, managing director of the Bank of New York's BNY Securities Group,said: "We are encouraged that the FSA is looking to the industry to develop a transparent mechanism for identifying the actual price of investment research."
The FSA received 146 responses its consultation paper on the issue, the infamous CP 176 that was issued in April 2003.