FCA sets out expectations for investment managers on dealing commission

Published: 08/05/2014   Last Modified : 08/05/2014

Investment managers should only use client dealing commission to pay for substantive research or costs related to executing trades, the Financial Conduct Authority (FCA) said today as it published a policy statement on forthcoming changes to dealing commission rules.

The changes reinforce the current rules and provide greater clarity on what investment managers can pay for using client dealing commission – worth approximately £3 billion per year. Firms that already meet the rules will not need to make significant changes to the way they operate.

FCA chief executive, Martin Wheatley, said:

“Investors should be confident that dealing commission is only used to buy execution or research services that deliver real value. These changes offer firms a real opportunity to show they put their clients first and strengthen the industry’s reputation for transparency.”  

The UK is a global centre for investment management, and the sector is vital to the UK’s economy, investing over £5 trillion on behalf of clients across the world. The FCA’s work on dealing commission reflects its priorities for the sector – it expects firms to ensure:

  • They are acting as good agents and taking proper account of investors’ interests;
  • They spend their clients’ money as though it was their own, seeking to manage costs with as much tenacity as they pursue returns; and
  • Clients are given easily understood information on the risks and costs of the service, and investment decisions reflect their stated objectives.

The changes on dealing commission come into force on 2 June 2014 and are a result of extensive industry consultation. They will prevent investment managers using dealing commission to pay for access to senior staff at firms they invest in (corporate access).

The changes also clarify which costs investment managers can pass on to their clients through dealing commission, including specific guidance on mixed use assessments, where substantive research is bundled together with services that firms cannot pay for using dealing commission. Past reviews found that controls on how dealing commission is spent could be improved and in 2012 we asked firms to confirm their controls were effective.

The FCA has a statutory objective to secure appropriate protection for consumers and enhance market integrity.

Notes for editors

  1. The policy statement on dealing commission, and related consultation paper
  2. On the 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  4. Find out more information about the FCA.

Back to top >