FSA Warned Against Abolishing Soft Commissions

by Carla Johnson, Investors Offshore.com

24 March 2004

The Investment Managers Association has warned UK regulator the Financial Services Authority (FSA), that it may drive many funds offshore if the practice of soft commissions is outlawed.

In a speech to fund managers, investment bankers and brokers in London, Richard Saunders, Chief Executive of the IMA warned against the unilateral decision by the UK authorities to outlaw soft commissions. "Improved transparency is here to stay... but we need to move in step with the US because the consequences of not moving in step with the US is business will leave the UK for New York,"

Soft commissions are a commonly used practice whereby brokers provide fund managers with various benefits such as research or news services which are included as part of a trade or transaction. The FSA believes that the use of soft commissions hides the true cost of trading and therefore damages transparency in the marketplace.

Following a series of financial scandals in the US, the SEC (Securities and Exchange Commission) is also consulting on the issue of soft commissions.

Saunders added: "We are quite likely to see an interesting situation arise where softing gets abolished in the UK but not in the US. That's a situation which I don't think we have seen before."

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