By Carly Phillips-Jones
In the FCA’s Quarterly Consultation Paper No. 35 (CP22/4), published on 4 March 2022, it proposed to make further changes to the Conduct of Business sourcebook (COBS) research rules for collective portfolio managers (CPMs).
This follows a policy statement (PS20/21) published by the FCA in November 2021, detailing changes to inducement rules on research and the removal of best execution reports linked to best execution. The intention of these changes was to ensure consistency across all the rules on research and inducements for investment firms and CPMs. However, in the November 2021 policy statement the FCA did not make all the necessary rule changes to achieve this outcome.
The research rules for CPMs are contained in COBS 18 and include cross references to the rules for investment firms in COBS 2.3A and standalone provisions that reflect the provisions in COBS 2.3A. In PS20/21, changes were made to the list of minor non‑monetary benefits in COBS 2.3A, however, the FCA inadvertently omitted to amend the COBS 18 Annex 1 list for CPMs in line with the changes for investment firms.
Therefore, the latest consultation proposes to complete these changes to the research rules for CPMs so that they are subject to the same requirements as investment firms. The FCA clarified that CPM firms include:
- UCITS management companies;
- full‑scope UK Alternative Investment Fund Managers (AIFMs);
- small authorised UK AIFMs and residual Collective Investment Scheme operators; and
- incoming European Economic Area AIFM branches.
The proposed changes to the rules include:
- the introduction of an exemption from the inducement rules for SME research below a market capitalisation of £200m;
- changing the research rules to create an exemption from the inducement rules for third-party research that is received by a firm providing investment services or ancillary service to clients when it relates to fixed income, currency or commodity instruments;
- the creation of an exemption for research provided by research providers that do not offer execution services or are not part of a financial services group that includes an investment firm offering execution services or brokerage services;
- including in the list of minor non-monetary benefits written material that is made openly available from a third party to any firms wishing to receive it or to the general public.
The proposed amendments to COBS are set out in the draft Conduct of Business Sourcebook (Amendment) Instrument 2022 in Appendix 4 to CP22/4. The consultation is open for comment until 11 April 2022 and the FCA encourage responses either via the online response form or alternatively email: firstname.lastname@example.org.