UK - The Financial Services Authority (FSA) has published for consultation new rules addressing the issue of soft commissions and bundled brokerage arrangements.
The rules aim to address the lack of transparency associated with soft commissions and should promote improved management of conflicts of interest, the FSA said in a statement.
Hector Sants, managing director of the FSA’s wholesale business unit, said: “The rules, combined with the industry-led proposals to deliver additional disclosure, address the issues of transparency and accountability raised by soft commissions and bundled brokerage arrangements.
“This should make the market for execution and broker services more efficient and sharpen incentives to provide better value for money to investors. We particularly welcome the proposals developed by IMA, LIBA and NAPF which will enable clients to understand better what they are paying for execution and research.”
The proposed rules confirm the FSA’s stated position that fund managers’ use of commission should be limited to the purchase of “execution” and “research” services as set out in the guidelines published in November last year.
The consultation paper includes details of the work done by the fund management and broker sectors, with the involvement of pension fund trustees, in developing measures to enhance transparency and accountability.
The proposed rules will: limit investment managers’ use of dealing commission to the purchase of “execution” and “research” services; require managers to disclose details on how the commission payments have been spent; embed incentives to secure value for clients for execution and research spend in the commercial relationship between managers and brokers; and promote a more level playing field in the production of research.
Deadline for consultation is May 31, with rules being finalised in July 2005.
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