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FSA calls time on research sweeteners

UK brokers and fund managers are confronted bold new plans drawn up by regulator, the Financial Services Authority, to force them to separate trading and non-trading costs when they charge clients. Thomas Williams talks to Christina Sinclair, head of the FSA’s business standards department, about the proposals

Why have you decided to tackle soft commissioning and fee bundling now?

It's important for customers to be clear how their money is spent. We believe that there are conflicts of interest under the current system.

What evidence have you found that the arrangement whereby fund managers pay soft commissions and bundle together the fees they receive for research and execution is detrimental to investors?

There is very little high-quality information about the dynamics of the UK marketplace, so before we launched any regulatory proposals we wanted to make sure that we understood the nature and scope of the conflicts and the underlying economics of the market. We asked Oxera [Oxford Economic Research Associates] to undertake research on our behalf, and we have published their findings with our consultation paper. Oxera's research showed that over £2.3 billion [$3.6 billion] was paid in commission by UK institutional fund managers to UK brokers in 2000.

What we are asking is whether there is an incentive under existing soft commission arrangements and bundled services for fund managers to pass through, as commission, costs to their clients that you might expect fund managers to bear themselves.

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