In a policy statement detailing its feedback to concerns raised about and comments made on the initial proposals, the FCA said the changes are designed to ensure that “investment managers seek to control costs passed onto their customers with as much rigour as they pursue investment returns.”
To this end, the FCA has refined its rules to ensure that only goods or services that are directly related to the execution of trades or the provision of “substantive research” can be paid for with client commissions.
According to the new definitions, for research to satisfy the “substantive” criterion it must:
- be capable of adding value to the investment or trading decisions by providing new insights that inform the investment manager when making such decisions about its customers' portfolios;
- whatever form its output takes, represents represent original thought, in the critical and careful consideration and assessment of new and existing facts, and does must not merely repeat or repackage what has been presented before;
- has have intellectual rigour and does must not merely state what is commonplace or self-evident; and
- involves analysis or manipulation of data to reach present the investment manager with meaningful conclusions based on analysis or manipulation of data.
In a press release, FCA chief executive, Martin Wheatley, was quoted saying: “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 other major focus was on the corporate access. It was ruled that corporate access, which is defined as “a service of arranging or bringing about contact between an investment manager and an issuer or potential issuer” is not a service or good that can be paid for with commissions.
The FCA also ruled that if substantive research is packaged together with other services or goods that do not fall into the acceptable category, these must be deaggregated and paid for by the firm itself.
The rules come into effect on June 2.
