FSA confirms bans on product provider payments to platforms and all product charge cash rebates

The FSA published a consultation paper yesterday confirming its intention to ban (i) payments from product providers to platforms; and (ii) cash rebates of product charges by product providers to consumers, in respect of sales of retail investment products. This is consistent with the proposals mooted in PS11/9 ten months ago.  The FSA now, however, wishes to bring execution-only platforms within scope, extending these rules to non-advised platform sales.  To read our briefing summarising the consultation paper, click here.

 The CP is interesting - not just for the proposals, which will significantly impact platforms and current business models - or the fact that they are being made without need of specific product intervention powers - but also for the fact that FSA commissioned independent analysis from Deloitte  to look at how the business models of platforms may be affected, and how the proposed policy on payments to platforms may affect competition.               

The objective of the analysis was to provide an overview of the potential competition impacts of banning rebates.  The approach to the analysis was based on the guidelines provided by the Competition Commission (“CC”) with regards to market investigations.  However, in this instance, the analysis "does not require" a conclusive definition of economic markets.  Instead "it is only necessary to identify the principal services and market segments that are affected by the bans in those markets and then to assess a limited set of competition concerns that may arise as a result of the bans".

The analysis concludes that the bans:

• would appear to enhance inter-platform competition, inter-fund competition and inter-adviser competition
• may raise the costs for platforms relative to adjacent markets
• are unlikely to change the platform market structure
• will affect market behaviours especially through changes in pricing transparency and structures, and
• appear likely to enhance the positive consumer outcomes of the RDR.

This analysis has been available to the FSA since February, though only published with this consultation.  It is not clear is whether the OFT – which is currently under a duty (s160) to keep FSA rules under review - has independently considered the competition effects of the proposed rules.   

Another interesting question is whether this ban will be able to stand once MiFIR comes into force: see our earlier post.

The rules will come into force on 31 December 2013, twelve months after the date on which the wider RDR rules come into force, giving firms a further year to bring themselves into compliance with the new rules.  These rules will add significantly to the costs already being incurred in implementing the wider initiative: estimated industry compliance costs are £17m – £43m initially, and £4m - £11m per year thereafter.