Legal
Cash for Access To Top Chief Execs Is Banned By The FCA
Investment managers can no longer use customer money for setting up meetings with chief executives of companies they want to invest in, the Financial Conduct Authority (FCA) said in a statement.
Investment managers can no longer use customer money for setting
up meetings with chief executives of companies they want to
invest in, the Financial
Conduct Authority said in a statement.
Paying brokers for access had become standard practice in the industry but the FCA says client commission should only be used for executing trades or for research into stock picks.
The regulator said dealing commission payments amount to £3 billion ($5 billion) per year, adding that it wants to see investment managers spend their clients’ money as though it was their own. The change comes into effect from 2 June when the new FCA rulebook is introduced.
Paying brokers for access had become standard practice in the industry but the FCA says client commission should only be used for executing trades or for research into stock picks.
The regulator said dealing commission payments amount to £3 billion ($5 billion) per year, adding that it wants to see investment managers spend their clients’ money as though it was their own. The change comes into effect from 2 June when the new FCA rulebook is introduced.
The regulator's action has some parallel with moves in different countries - such as the UK - to stop lobbyists using financial payments to gain influence over lawmakers and to remove dangers of policy being driven by financial self interest.
Within the wealth management industry itself, the Retail Distribution Review crackdown on trail commission payments to advisors can be seen as another way of making businesses more independent and transparent about sources of income.
“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,” said Martin Wheatley, chief executive at the FCA.
“The changes on dealing commission will prevent investment managers using dealing commission to pay for access to senior staff at firms they invest in,” the FCA added.
The watchdog has estimated that anything up to £500 million of dealing commission was spent in 2012 to arrange such meetings.