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EU to outdo UK on dealing commission

Europe is set to go further than the FCA in banning uses of dealing commission by fund managers.

A consultation on the proposed Markets in Financial Instruments Directive II, published by the European Securities and Markets Authority, includes banning the use of dealing commission for any privileged access to research analysts, including face-to-face meet-ings or conference calls.

It also bans the use of dealing commission to buy any bespoke reports or analytical models, investor field trips, or corporate access and market data services.

Countries have until 1 August to respond. Final Mifid II rules will be implemented on 1 January 2017.

The proposed rules go further than FCA rules, which came into force last week, by banning any form of bespoke research and access to analysts. 

FCA rules have banned the use of dealing commission money to gain face time with company management. Deals that offer rebates on research to fund houses for putting trades through the brokerage businesses were also stamped out by the FCA.

FCA chief executive Martin Wheatley says investors should be confident that the money will be used only to deliver ‘real value’ in the trading process. 

The regulator will completely ban the use of dealing commission money to gain face time with company management, but not analyst access or bespoke research.

Esma says firms should only use dealing commission to pay for a ‘minor non-monetary benefit’ and adds any bespoke research or analyst access does not fall under this definition.

The Esma consultation says: “Any research that is tailored or bespoke in its content or rationed in how it is distributed or accessed would be of a scale and nature such that its provision is likely to influence the recipient’s behaviour and cannot be a minor non-monetary benefit.

“This would include privileged access to research analysts (e.g. face-to-face meetings or conference calls), bespoke reports or analytical models, investor field trips, or services linked to research such as corporate access and market data services.”

Investment Management Association director of risk compliance and legal Guy Sears says: “It will be important in the UK to ensure there is a level playing field and any new rules are also imposed on un-regulated collective investment schemes and alternative investment managers.”

Adviser View


Evolve Financial Planning director Jason Witcombe:

“We need to make sure explicit monetary commission is not replaced by a shadier form of hidden commission but there needs to be a common sense approach. A day at the races is going too far but is a group seminar with a sandwich lunch?”

David Sheehan Opal

Opal Financial Management IFA David Sheehan:

“Nothing remains constant in this industry and introducing one set of rules and changing them soon after as will happen here once Mifid II comes it makes life very difficult. Some co-ordination on how they put these rules out would be great but they all seem to be going at their own pace.”


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