Regulatory Roundup 52 included an article on the FCA’s consultation (CP13/17) on proposed changes to the rules on the use of dealing commission (COBS 11.6). The recently published Policy Statement PS14/7 contains feedback on the proposals together with the final rules.
As a reminder, investment managers are prohibited from accepting goods or services when arranging execution of orders through a broker etc. unless the investment manager is ‘reasonably satisfied’ that said goods or services are related to the execution of trades or comprise the provision of research (the precise wording can be found in COBS 11.6.3).
Brief highlights of changes to rules include:
- The ‘provision of research’ exemption to the prohibition now refers to ‘substantive research’
- The evidential provisions relating to substantive research includes presenting an investment manager with ‘meaningful conclusions’
- As flagged up in CP13/17, ‘corporate access services’ will not pass the ‘execution of trades’ or the ‘substantive research’ test
- Any charges passed on to customer should not be greater than the cost charged by the broker etc. (and disaggregated where necessary)
- With respect to the above, where not distinctly priced then the investment manager must ‘make a fair assessment of the charge’
- A new record keeping requirement on why it is concluded that a particular good or service may be received
The FCA are ‘not minded’ to provide a detailed taxonomy of goods and services on what is acceptable under these rules, but has left the door open if other bodies (the IMA and AFME are mentioned) to develop a common taxonomy by expressing a willingness to engage in any such initiative.
The final rules, which came into force on 2 June 2014, can be found in the Appendix within PS14/7.
We would recommend that firms review their current policies and procedures in the light of the above to ensure that they will be compliant with the revised rules.