U.K. Regulators Limit Soft Dollar Payments

May 7, 2004 (PLANSPONSOR.com) - Following the lead of a similar ongoing debate among U.S. regulators and lawmakers, Britain's financial regulator on Friday limited soft dollar commission payments to execution services and investment research.

At the same time, the Financial Services Authority (FSA)  said it was also working with the Investment Management Association (IMA) to develop a better way to disclose securities research charges. “These measures will allow investors to make more informed decisions about services charged to fund assets by fund managers, and help to ensure that investment research and execution services are sourced in the interests of fund investors,” the FSA statement read.

The FSA will assess the industry’s progress in December. The watchdog has also held extensive consultations over the past six months with the brokers and asset managers on ways to improve transparency by unbundling the different payments for buying and selling shares and for investment research and other services.

“We have concluded that the softing and bundling of non-execution goods and services are not in the interests of investors,” Christina Sinclair, FSA head of Institutional Business Policy, said in the statement. “To eliminate the conflicts of interest that currently arise, we will limit the scope of such arrangements to execution services and investment research. Alongside this we are giving the industry space to develop a transparent mechanism for identifying the price of investment research included in commissions.

Sinclair continued: “These measures will together help strengthen fund managers’ accountability to their clients. If the industry fails to deliver a high quality and workable solution, we will reconsider the need for stronger regulatory intervention.”

More information about the agency’s soft dollar and research disclosure initiatives is available at http://www.fsa.gov.uk/pubs/policy/04_13/index.html .

In the U.S. w hile the practice is not against the law, soft-dollar transactions have been the subject of intense SEC (See    SEC Gives Tentative OK to 12b-1 Limits, Disclosure Rules ) and Congressional scrutiny. A mutual fund bill that cleared the US House of Representatives last year would require greater disclosure of soft-dollar arrangements while a bill introduced in the US Senate by Senator Peter Fitzgerald, (R-Illinois), would ban them altogether (See  Senate Fund Reform Bill Would Kill 12b-1 Fees ).