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The Financial Services Authority (FSA) has today published its policy statement PS06/5 Bundled Brokerage and Soft Commission Arrangements for Retail Investment Funds – feedback on CP05/13.
The FSA proposed that an 'investors' representative' should receive and consider any commission-related disclosures about retail funds on investors' behalf and interact with the fund manager where necessary.
However, following feedback, it has decided that it will not make rules in this area but will encourage and support an industry-led solution to dealing with this issue and will look to firms to demonstrate that they are treating retail consumers fairly.
Dan Waters, FSA Director of Retail Policy, said
“In keeping with its principles-based approach to regulation, the FSA view is that where industry-led initiatives are capable of delivering solutions to potential market failures, it would be disproportionate to introduce rules before first allowing the industry to develop and implement a solution.
“We still view the investors’ representative model as a potential solution but will allow firms to decide for themselves how best to achieve the outcome we want to see – namely, that the interests of retail fund investors are better served through more transparency and challenge on the use of fund assets to purchase research and execution services.”
The relevant trade associations – the IMA, DATA, the ABI and the AITC – agree that a disclosure-based approach can work for retail funds. The trade associations have agreed to consider further how standards of good practice can be established, and new ones developed where needed, to implement a consistent approach to the way commission disclosures are considered. This is expected to include more detail on:
- who is best suited to receive and consider disclosures for each type of fund;
- how they should go about reviewing the information;
- what kind of feedback they should be giving to fund managers; and
- what information should be made available to fund investors.
As previously announced, the FSA will be carrying out a review in 2008 into the effectiveness of the new rules on soft commissions and bundled brokerage and the industry disclosure codes which support them on the wholesale side. The review will also look at how disclosure has benefited investors in retail funds.
Background
- The policy statement - Bundled Brokerage and Soft Commission Arrangements for Retail Investment Funds – feedback on CP05/13 - is available on our website.
- The FSA published its final rules in Policy Statement 05/9: Bundled brokerage and soft commission arrangements - Feedback on CP05/5 and final rules.
- The FSA's new rules came into force on 1 January 2006 for any arrangement under which an investment manager receives goods or services from a third party (such as a broker), in return for passing the third party’s charges on to its own customers – typically in the cost of dealing commission.
- 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 promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
