Client trading commissions should only be used by money managers to pay for “substantive research or costs related to executing trades,” the U.K.'s Financial Conduct Authority has ruled.
The U.K.'s financial watchdog has made changes to rules governing commissions and how they are spent by money managers following a comment period that was launched in November 2013.
The FCA said money managers earn about £3 billion a year from trading commissions client dealing commission is worth about £3 billion ($5.1 billion) per year.
The changes, effective June 2, will stop money managers from using commissions to pay for corporate access – access to senior staff at the firms in which they invest. These commissions are used to pay brokers to arrange meetings with the corporate management of firms that money managers have or are considering investment in, according to the FCA's original consultation paper.The FCA has also clarified which costs money managers can pass onto clients through dealing trading commissions, including specific guidance on the payment for research that is bundled together with other services that do not fall within the permissible costs.
“Investors should be confident that dealing commission is only used to buy execution or research services that deliver real value,” said Martin Wheatley, CEO of the FCA, in a news release. “These changes offer firms a real opportunity to show they put their clients first and strengthen the industry's reputation for transparency.”
The changes were welcomed by the U.K.'s money manager trade body, the Investment Management Association, which had previously called for these clarifications.
“For example, we felt the previous guidance on valuation and disclosure did not address sufficiently the fact that most research and corporate access is provided on a bundled unpriced basis — but now it does,” said Guy Sears, director of risk, compliance and legal at the IMA, in a separate news release. “However, whilst the FCA has provided more comment about international aspects than before, the impacts on those managers with international operations still remain a challenge – especially with the new rules taking effect in only 16 working days.”