Thanks to the regulator’s reluctance to write a rule, we find ourselves counting down to RDR implementation with Policy Statement 12/3 threatening to put the brakes on industry momentum on re-registration.
Let’s be clear here, when your volumes are measured in units and tens, there are many things which are easy to do. When you perform re-registration in cash and in-specie on and off platform at volume, it’s a completely different ball game. But that hasn’t stopped us from doing it for years.
With over 300 re-registration messages on the average day we know better than most the benefits an industry technical standard for messaging brings to each party in the transaction. This is why we have been trying to get the industry to agree on this for years.
However, by combining the impact of policy statement 11/9’s deferral on cash and unit rebates with the statement in consultation paper 11/26 that re-registration is not advice within the terms of the FSA’s perimeter guidance manual on regulated activities and specified investment, the industry- until then, moving at relatively good speed and consistency- has had to pause and change its approach.
Despite arguments from some quarters to the contrary, this poses a real problem and it’s this: if you were to make three investments in a 150bp fund in three separate years, 2012, 2013 and 2014, the treatment will be different for each: trail for 2012, cash rebate for 2013 and unit rebate (potentially) for 2014. In order to enable automated re-registration of this asset, but not lose the treatment, the industry will need to look at changing the international industry messaging standard – which was not designed to tell the difference between trail commission, cash rebates and, in due course, unit rebates – not a quick or an easy task. Some state that as they already rebate trail, this is not an issue for them. I believe that they’ll still have to differentiate between trail and cash rebates for their statements to be accurate and to keep their positions aligned with those of the fund managers.
PS12/3 reconfirms this position, but has added two “clarifications”. First, that if any buying or selling advice has been given within the overall discussion that included the recommendation to switch platforms, then this is an advised re-registration. The questions remain: one, how are people going to build this logic into their systems and is this to be determined by the acquiring or the ceding platform; two, how will it work in practice if it’s left up to individual platforms to decide the approach they will adopt?
This is an unfortunate case of FSA pragmatism overriding the clarity a rule would provide, with the unintended consequence being potential consumer confusion, possible inconsistency leading, in turn, to a possible industry-wide deterioration in service. And this at a time when the need for clarity and a common-sense approach to the treatment of legacy assets is more pressing than ever. A point that we’ll continue to make to the FSA through the UK Platform Group.
Stephen Mohan is managing director, operational services at Cofunds