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News November 6, 2006 Issue

U.K. FSA Releases Preliminary Report on Effects of Unbundling

As a first step towards assessing the impact of its new unbundling regime, the U.K. Financial Services Authority recently issued a report, prepared by economic consulting firm Oxford Economic Research Associates (Oxera), describing "performance indicators" that will be used to measure the new unbundling regime and providing an initial snapshot of the current commission practices in the U.K. "We are satisfied that we now have a suitable performance management framework of high quality that will enable us, over time, to assess the effectiveness of the industry-led solution," said the FSA in a press release accompanying the report. The regulator plans to gather additional data in 2008, which it will use to evaluate the effectiveness of the unbundling regime.

According to the report, managers "are beginning to separate discussions on purchasing research from discussions on buying execution." However, the FSA said that it did "not yet see all the out-turns we are looking for." The regulator noted that industry practices have begun to change and said that it looks for further progress "as the transparency around the spending of commission improves and information becomes available to fund managers and trustees." The FSA said it would continue to work with the U.K. trade associations, including the London Investment Banking Association and the Investment Management Association, "to secure our desired outcomes." Among other things, the FSA said that it expects managers to be able to obtain from brokers "the transparent information they need to make good decisions." Brokers, they said, should be able to price research independent of the volume of trading. "In a world in which even the most esoteric and complex instruments can be priced as a matter of daily business, this must be possible," the FSA asserted.