UK Authority Addresses Brokerage and Soft Commission Arrangements

Washington, DC, May 14, 2004 – The Financial Services Authority (FSA) of the United Kingdom has taken action to promote efficiency and transparency in the UK securities markets by limiting the use of bundled brokerage and soft commission arrangements by asset managers. The FSA will develop an improved system of disclosure that clearly identifies charges for research and execution.

Background
In April 2003, the FSA published a consultation paper on the use of bundled brokerage and soft commission arrangements that proposed two measures: to limit the range of goods and services that could be purchased with commissions, and to require fund managers to value the goods and services that could be paid with commissions and to rebate an equivalent amount to their clients.

According to the policy statement, the FSA plans to review the progress made by industry at the end of the year to determine whether further regulation will be necessary. The FSA also intends to strengthen retail fund governance as a means to sharpen the accountability of fund managers.

The FSA’s policy statement also attaches a study analyzing the cost impacts likely to arise from the FSA’s proposals and assessing the consequences of the competitive position of UK fund managers. The report indicates that the proposals would not have a significant impact on the competitiveness of the UK fund management industry as a whole although some medium-sized and smaller fund managers would probably exit from the market. The report also predicts that implementation of both FSA’s proposals could deliver net savings to clients’ funds through reduced consumption of bundled services and lower commission costs.

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