The regulator has sought advice about whether to ban discretionary managers from rebating third party payments on to clients as part of a discussion paper on the implementation of MiFID II.
The upcoming European MiFID II set of regulations has proposed banning discretionary fund managers (DFM) from retaining third party payments, such as commissions, but allowing them to rebate the payments on to clients
But the FCA has decided to consult on whether to take the ban one step further, in order to mirror the rules on rebates introduced in the RDR and cash rebates on platforms.
The regulator explained the rebating of commission had the potential to lead to bias because it gave “an incentive to select commission-paying products, as the commission could then be rebated back to the client”, which would give the impression to the client of ‘discounted’ charges.
“Allowing rebating for [DFM] firms may create the potential for consumer confusion and regulatory arbitrage,” the FCA said.
“Firms may seek out commission-paying share classes and then rebate the commission to their clients, seemingly reducing fees and creating confusion among clients about the true cost of both the product invested in and the [DFM] services.”
The discussion paper asked both whether the FCA should ban all rebates or just cash rebates back to clients.
The discussion paper encompassed a range of other implementation issues regarding MiFID II and gave respondents have two months to give the FCA their views.
