British regulators are demanding that investment managers only use their trading commissions to pay for substantive research or trade execution.
The UK Financial Conduct Authority (FCA) published a new policy Thursday that sets out its expectations for investment managers in allocating dealing commissions, ahead of forthcoming changes to its rules in this area. The FCA says that the changes reinforce its current rules and provide greater clarity on what investment managers can pay for using client trading commissions – which it says are worth approximately £3 billion ($5.5 billion) per year.
The changes, which are slated to take effect on June 2, will prevent investment managers from using commissions to pay for access to senior staff at firms they invest in. They also clarify which costs investment managers can pass on to their clients, including specific guidance on research that is bundled with other services that firms cannot pay for using dealing commission.
The FCA says that it expects firms to ensure that, among other things, they spend their clients’ money as though it was their own, and that they “aim to manage costs with as much tenacity as they pursue returns”. It also says that clients should be given clear information on risks and costs.
“Investors should be confident that dealing commission is only used to buy execution or research services that deliver real value,” said FCA chief executive, Martin Wheatley. “These changes offer firms a real opportunity to show they put their clients first and strengthen the industry’s reputation for transparency.”