Changing Regulations for Bundling and Soft Commissions in the UK and US

July 7, 2003

Abstract

Paris, France New York, NY, USA July 7, 2003

Changing Regulations for Bundling and Soft Commissions in the UK & US

The UK痴 Financial Services Authority's proposals for soft commissions and bundling will radically change the UK's trading landscape. These changes would benefit investors but could harm the UK痴 financial services industry due to a lack of regulatory alignment with other major industry centers. The UK brokerage industry in particular could lose revenues of up to 」615 million annually.

In a new report, " ," Celent analyzes the proposals and potential impacts of a new Financial Services Authority report on bundling and soft commissions.  

In the US and other countries, financial regulators are unlikely to follow the UK in eliminating soft commissions and mandating full transparency for bundled services. Instead, regulators are likely either to require increased supervision or to do nothing, encouraging UK financial services firms to consider moving their operations abroad, with implications for the country痴 standing as a global financial center.

Independent research providers and other vendors that receive payments from soft commissions will suffer under the new regulations. Fund managers will be forced to weigh the value of all research, both bundled and independent, as a cost from their management fees. Large brokerage firms are likely to have an easier time as research can be seen as free marketing material, while bundling trading commissions with IPO access will still be permitted. Independents, however, will have to make their case to a much more cost-conscious audience.

"The UK Financial Services Authority is benefiting the world痴 investors but may be damaging their own financial services industry," comments Octavio Marenzi, Celent's managing director and co-author of the report.Marenzi adds, "The economic misalignments created by bundling and soft commissions are real, but by going it alone, the FSA may inadvertently damage a domestic industry already struggling with a longstanding bear market."

The 23-page report contains 7 figures.

A is available online.

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Michele Pace
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Table of Contents

 

Paris, France New York, NY, USA July 7, 2003

Changing Regulations for  Bundling and Soft Commissions  in the UK & US

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 4
A PRIMER ON BUNDLING AND SOFT COMMISSIONS 5
  Bundling 6
  Soft Commissions 7
THE FINANCIAL SERVICES AUTHORITY'S CONSULTATION PAPER 176 10
  Background 10
  Investor Protection is the Heart of the Matter 10
  The Proposals 11
THE REGULATORY ENVIRONMENT IN THE US 14
  The 1998 SEC Report 14
IMPLICATIONS FOR CHANGE 17
  Regulatory Alignment or Arbitrage? 17
  UK Brokers 18
  Independent Research and Other Third-Party Vendors 19
  Winners and Losers 21

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