The Financial Conduct Authority (FCA) is moving to prevent asset managers using dealing commissions to pay for research that does not provide value to investors, after a review ofthe £3 billion (€3.8 billion)-a-year market.
The FCA, which regulates the UK capital markets, found that out of 17 asset managers and 13 brokers, only two asset managers were operating at the level it wanted with regards to dealing commission, which are the charges paid by clients for executing trades and external research.
Meanwhile, the regulator says it is discussing redress for clients of one firm, which used dealing commission to pay for market data services in full, which is against the FCA's rules.
“There is strong evidence to suggest the current model of using dealing commission to pay for research reduces transparency and creates a link between research spend and trading volume, without a clear assessment of the value this offers to investors,” says FCA chief executive Martin Wheatley.
The FCA says it will now support proposed European reforms to further separate research from dealing commission.
The FCA proposed changes to the dealing commission last year, aiming to make the market for research more transparent and to compel asset managers to control costs for clients.
Nearly half, 45%, of investment professionals in a survey by the CFA Society of the UK say asset managers do not manage clients’ dealing commission with as much diligence and care as they would if it was their own money.
The FCA has also moved to prevent asset managers using dealing commissions to pay for access to senior executives at companies in which they invest.
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