FCA issues reminder to firms of best execution duties FCA's rules

In February the FCA issued a statement in MarketWatch reminding firms of their duties under the COBS rules and ESMA guidance on best execution.  The FCA is currently undertaking a thematic review of best execution in different markets with findings due to be published later this year.

It has also recently concluded an analysis of firms offering transition management services.  The regulator’s thematic work has uncovered a concern that firms’ assessment of best execution does not include some aspects of the guidance and the COBS rules.  The statement is intended to update the industry on some areas where firms may have misunderstood the requirements.

The FCA’s observations are summarized as follows:

  • Investment firms should consider the characteristics of their clients when determining the relative importance of the execution factors to be taken into account when executing orders.
  • The effectiveness of order execution arrangements, including the selection of brokers, should be monitored.
  • Brokers in, inter alia, regulated CFD and spread-bet firms and those who offer Rolling Spot Forex CFDs may be failing to recognize that they are subject to the best execution rules.
  • Best execution applies to orders in OTC financial instruments as well as shares traded on centralized execution venues.
  • The application of the best execution obligations is determined by whether the execution of the client’s order can be seen as truly completed on behalf of the client, who is relying on the firm to protect their interests.
  • Firms must not circumvent their best execution duty by inducing a client to give specific instructions with the aim of satisfying best execution requirements by following those instructions.
  • Firms should not look to retain any slippage in the client’s favor, whether due to positive price movements before execution of an order or in relation to limit orders offered to clients.
  • Where price transparency to clients is poor, firms can achieve best execution by using public reference prices and disclosing a methodology for calculating fees and charges.

Firms are reminded to ensure they are aware of their duties and have adequate systems and controls in place, in particular relevant policies and monitoring arrangements.

FCA issues reminder to firms of best execution duties FCA's rules 2014-02-21T00:00:00.0000000 /insights/publications/compliance-and-regulatory-consulting/fca-issues-reminder-to-firms-of-best-execution-duties-fcas-rules publication {DA6CC51B-740E-439A-B283-2BBFB5326BAA} {DE05ECA4-1852-4BEF-A4E1-491CB497F9CB} {65648E61-ED08-40DF-AEE6-DB90ABD49289} {871EB752-F3E8-4991-AA79-545153989F0D} {1C3CB363-1B9A-40E2-AF19-5C433260F861} {95D7F66C-11BB-4E7D-B07C-48874A321F98}

Related Services

Duff & Phelps Compliance and Regulatory Consulting

By Jurisdiction

Regionally targeted assistance for asset managers in compliance program development, implementation and maintenance

By Jurisdiction
Duff & Phelps Valuation Advisory Services

Portfolio Valuation

Alternative investment valuation for private equity and hedge funds.

Portfolio Valuation
Duff & Phelps Compliance and Regulatory Consulting

EU Regulation

Comprehensive compliance and regulatory support for EU firms.

EU Regulation