UK unbundling regime moving market in right direction - FSA

The UK regime governing dealing commissions has helped cut commission rates, limited use of commissions to the purchase of execution and research services and encouraged greater separation in how these services are bought, the Financial Services Authority (FSA) said.

In a review of the framework for buy-side use of dealing commissions introduced in 2006, the UK regulator claimed that benefits had been “clearly delivered” to the market, adding that the “expected changes were occurring and that the market was moving towards delivering the intended outcomes”.

The FSA report noted that use of commission sharing agreements (CSAs) had increased, with 70% of investment managers using CSAs compared with 50% in 2005. It also found that commission expenditure is now “overwhelmingly” used to pay for research services rather than execution-related services. Commissions have declined since the introduction of the new rules, the report found, in line with expectations that greater transparency would exert downward pressure on pricing, but the FSA acknowledged that the trend toward lower commission rates was established before the regime was introduced. Management fees were found to have fallen between 2006 and 2007 for actively managed funds while charges for passively managed funds increased slightly.