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06 March 2017

AIMA: FCA warning to firms on the use of dealing commission

The FCA published a clear warning to asset managers on research spending issues. The overwhelming area of concern relates to research valuation and budgeting (rather than the payment process).

The FCA has said: “We identified poor practices at the majority of firms we visited and several could not demonstrate meaningful improvements in terms of how they spend their customers’ money through their dealing commission arrangements.”

The FCA has raised a number specific concerns, including concerns regarding:

  • a lack of thought or consideration on setting research budgets, including linking budgets to historical spending rather than conducting a meaningful assessment of the amount of research required;
  • firms failing to attribute a price or cost to substantive research received;
  • poor record-keeping with respect to demonstrating that research: is substantive and relates to trading on behalf of customers; will reasonably assist in the provision of services to customers; and that it will not impair the firms’ duty to act in the best interests of the customer.

The FCA also raised concerns that firms with overseas operations and delegation of investment management services had failed to implement controls and oversight structures to ensure outsourced activities comply with the rules. In light of the findings, and the implementation of MiFID2, the FCA has indicated an intention to continue to focus on deal commission arrangements. The FCA has indicated that they will consider taking further action in relation to breaches of the rules, including referrals for formal investigation. The concerns have been raised following visits to 17 firms, including asset managers.

Full article


© AIMA - Alternative Investment Management Association

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