British regulators are proposing rule changes and new guidance for investment managers concerning their allocation of dealing commissions.

The UK Financial Conduct Authority (FCA) Monday proposed changes to its rules, along with new guidance, concerning investment managers’ use of client commissions. The FCA says that the proposals are intended to ensure that the commissions investment managers pay for executing trades and related services are fairer and more transparent.

“The proposals are designed to ensure investment managers make appropriate judgments and seek to control costs to clients when using dealing commission to pay for research goods and services,” it says.

The proposals include measures to: clarify the criteria for determining the goods and services that can be purchased by investment managers with dealing commissions; define ‘corporate access’, and providing guidance on how investment managers should treat corporate access under these rules; and, guidance on making assessments where investment managers purchase bundled brokerage services that contain both research and non-research elements, to ensure that only research is paid for with dealing commission.

The FCA estimates that last year, the asset management industry generated over £3 billion in dealing commission, and that about £1.5 billion of that was spent on research. “However, it is not clear that all the research commissioned offered good value to clients, or would have been commissioned if investments managers had to pay for them using their own funds,” it says.

The regulator says that it believes that improving transparency will ensure better investor protection and promote market integrity. The proposals are out for a three-month comment period. The FCA expects to finalize new rules in the second quarter of 2014.

It notes that this consultation forms part of a wider effort to consider potential reforms to address flaws in the use of dealing commissions amid possible EU reforms in this area, and a growing consensus in the industry that existing practices can be improved.

“We need to be confident that managers are putting their clients’ value for money, good returns, and transparency at the heart of how they do business. So today’s consultation is part of a wider debate on the need to reform the use of the dealing regime, particularly the use of dealing commissions, and how industry practice can be improved now to the benefit of all,” said Martin Wheatley, CEO of the FCA.

“As a forward-looking regulator, we expect firms to exercise judgement to act in the best interest of their clients – seeking to manage their clients’ costs as effectively as they pursue investment returns.”