FSA Unveils Conclusions On Fund Disclosure To Retail Clients

by Robin Pilgrim, LawAndTax-News.com, London

03 July 2006

The UK's Financial Services Authority on Thursday published its policy statement on bundled brokerage and soft commission arrangements for retail investment funds.

The FSA had 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, the regulator has decided not to make rules in this area but to encourage and support an industry-led solution to dealing with the issue.

Dan Waters, FSA Director of Retail Policy, explained that:

“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 have agreed that a disclosure-based approach can work for retail funds. They will now 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.

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.

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