The FSA will assess in December whether the industry's work on enhanced transparency and disclosure is on track to achieve the desired outcomes. If it is not then the FSA will consider what further regulatory action is necessary.
Commenting on the proposal, Christina Sinclair, Head of Institutional Business Policy, said: “We have concluded that the softing and bundling of non-execution goods and services are not in the interests of investors. To eliminate the conflicts of interest that currently arise, we will limit the scope of such arrangements to execution services and investment research. Alongside this we are giving the industry space to develop a transparent mechanism for identifying the price of investment research included in commissions. "These measures will together help strengthen fund managers' accountability to their clients. 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."
Earlier this week, the FSA's Chief Executive John Tiner met the IMA and other industry representatives to outline the FSA's proposals and reaffirm the expectation that good progress would be made by the end of the year in developing an enhanced disclosure system. The IMA confirmed their intention to lead work with brokers, fund managers and pension fund trustees to that end. The FSA will also review the governance of retail funds to ensure that all investors are able to take advantage of the new market structure.
Background
- The FSA received 146 responses to CP 176, issued in April 2003.
- HM Treasury published a report by Paul Myners entitled “Institutional Investment in the United Kingdom: A Review" in March 2001 and endorsed its key findings. It was announced in a Treasury statement in July 2001 that the FSA had agreed to bring forward its own review of soft commission arrangements and bundled broker services, in connection with its work on best execution. In the review Paul Myners said “[…] There is an a priori case that this system creates an artificial bias for fund managers to have services provided by the sell-side, distorting competition, since the costs for these will not be scrutinised by the client and are not a direct charge to the fund manager’s profit.[…]”
- John Tiner, Chief Executive of the FSA, made a speech referring to our policy and industry involvement on 26 March at the CBI Financial Services Council Meeting. His comments are available here.
- We have also published today research carried out by Deloitte and Touche which shows that fears of a mass exodus of fund management business off shore following implementation of the full CP176 package were groundless.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
