There has been a flurry of papers produced over the last 6 months in relation to the use of dealing commissions, and the industry seems headed for a new world of unbundling. What are firms going to do?

In July 2014 the FCA published DP14/3 in relation to the use of dealing commissions and feedback from its thematic review.

“We have ongoing concerns about investment managers’ control over the use of dealing commissions and the conflicts of interest it creates for them as agents to their customers, given the lack of transparency of these costs. This is exacerbated by the largely unpriced and opaque market for research.”

DP14/3 comes off the back of the FCS’s recent changes to COBS 11.6 in June 2014, and the changes proposed in MiFID II to apply across the EU. Despite the recent changes, or rather “clarifications” to COBS 11.6, it seems the future is clear:

Overall, we conclude that unbundling research from dealing commissions would be the most effective option to address the continued impact of the conflicts of interest created for investment managers by the use of a transaction cost to fund external research.”

For practical advice about changing your commission sharing agreements, Cleveland & Co, your external in-house counsel, are here to help.

For further information see:

DP14/3 Discussion on the use of dealing commission regime: Feedback on our thematic supervisory review and policy debate on the market for research, FCA, July 2014

PS14/7 Changes to the use of dealing commission rules: feedback to CP13/17 and final rules, FCA, May 2014

The Use of Dealing Commission for the Purchase of Investment Research, Investment Management Association, February 2014