UK: FCA publishes feedback on its thematic review of the use of dealing commission

Investment managers will be aware that the FCA has been holding discussions with the industry and conducting a thematic supervisory review (between November 2013 and February 2014) as to the controls that investment managers have over the use of dealing commissions for the purchase of research.  The Financial Conduct Authority (FCA)'s Discussion Paper (DP14/3) provides feedback on that review and policy debate on the market for research.  

The FCA considers that many firms do not apply a sufficient level of control and oversight on research spending from dealing commission and need to improve their controls. Overall the FCA concludes that unbundling research from dealing commission would be the most effective way to manage any conflicts of interest that arise where brokerage costs fund external research.

The DP looks more broadly at whether structured reform is needed to ensure investment managers are managing costs appropriately in the best interests of their customers and the competition implications of that. Their objective is to ensure value for money is achieved by investment managers for their underlying investors.

As the DP is wide-ranging, our briefing focuses on the findings from the thematic work and the steps that the FCA believes firms should take to ensure their existing practices and systems and controls meet the FCA's current rules on the use of dealing commission. Firms may find it useful to take account of the supervisory findings in considering steps they could take.