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UK Financial Watchdog Sets Order in Platform Payment Rules

At the start of the month, the UK's Financial Services Authority (FSA) was divided into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), two watchdogs that set ambitious aims for beefing up controls in the sector. It soon became clear that the new regulators were not kidding, as on April 24, the FCA slapped a GBP 4.2 million ($6.6m) fine on EFG Private Bank for problems in its anti-money laundering procedures. 

 

And just a couple of days ago, on April 26, the FCA unveiled a set of new rules for the platforms industry, this time aiming to set in order the way the platforms are paid.
 

UK Platforms

 
Platforms are a form of online services that allow retail intermediaries and retail clients to monitor and administer investments. In the UK, they are also used for the safeguarding and administration of financial instruments for the account of clients. Putting it bluntly, platforms allow clients to purchase different retail investment products, like exchange traded funds (ETFs), and to take part in different investment schemes.
 
Sometimes platforms use advisors as intermediaries (advised-based platforms) and sometimes they provide their services directly to clients (D2C). The new rules will apply to both advised- and non-advised platforms.
 
One of the reasons that the platforms industry has fallen under the watch of the FCA is that it has been rapidly expanding over the past few years. According to research by Deloitte, 16% of all of the assets in the UK, or GBP 229 billion ($357bn) are held on platforms. And by the way, the UK platforms market is the leader in Europe in respect to assets under administration (AuA).
 
 

The Problem

 
The FCA has spotted a problem in the way the platforms are financed: it turns out that many of the platforms are funded through payments, or rebates, from product providers. The rebates allow such platforms to offer services for “free” to retail investors, while allowing product providers to influence what products and services the platform offers. A platform may simply stop offering services for which it does not get rebates.
 
The regulator has concluded that such practices are rotten, as they damage competition and do not allow customers to make an informed choice about the price paid to use a platform.
 
 

The Solution

 
The FCA bans any rebates or funding sources of a platform, apart from customer charges. In other words, platforms will be banned from getting any remuneration other than platform charges payable by the retail client for its platform service. It cannot be simpler than this – you pay what you get and you get what you've paid for!
 
The rules are set to come into effect on April 6, 2014 – and that's less than a year from now, while the companies affected will have to move all of their clients (and their legacy assets) to the new structure until April 6, 2016. That's a two-year period of transition and we hope that's enough for affected parties to re-adjust!
TAGS: uk  fca  financial conduct authority  platforms  forex trading  investment  retail investors  rebates  platform charges 

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