FSA Consults On New Rules For Soft Commission And Bundled Brokerage

by Robin Pilgrim, LawAndTax-News.com, London

01 April 2005

The UK's Financial Services Authority (FSA) on Thursday published for consultation rules addressing the issue of soft commissions and bundled brokerage arrangements.

Hector Sants, Managing Director of the FSA's Wholesale Business Unit, explained that:

"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."

According to the FSA, the proposed rules are designed to:

• Limit investment managers’ use of dealing commission to the purchase of ‘execution’ and ‘research’ services;
• Require investment managers to disclose to their customers details of how these commission payments have been spent and what services have been acquired with them;
• Embed incentives to secure value for clients for execution and research spend in the commercial relationship between investment managers and brokers; and
• Promote a more level playing field in the production of research, whether within investment banks or by third parties.

The consultation is set to end on May 31, with the final version of the proposed rules being published in July.

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