Best execution in the UK is governed by the Conduct of Business Sourcebook as well FCA Principle 3 (risk management systems and controls) and Principle 6 (treating customers fairly). A recent Thematic Review by the FCA found that retail and professional clients are being failed by firms that don’t properly apply the rules on best execution when trading on their behalf.
The FCA concluded that “not enough is being done by firms to ensure best execution is being consistently delivered to clients”, and made clear that it will be paying close attention to monitoring capability in further best execution reviews. The FCA also emphasized that it expects “senior management with responsibility for trading activities to take greater responsibility for ensuring that policies and arrangements remain fit for purpose.”
In March 2017 the FCA outlined findings from recent supervisory work, noting that “Investment Managers are still failing to ensure effective oversight of best execution.”
The FCA found that “best execution monitoring in fixed income was less sophisticated than in equity trading” but that “some firms have been more proactive in how they meet their obligations than others” and noting that this “highlights that meaningful steps can be undertaken to ensure best execution even in less transparent markets” such as the FX sphere. The FCA concluded that we “expect all firms to be aware of enhancements to best execution monitoring as they become available and assess whether they are suitable and proportionate for their business model.”
The PRIIPs Regulation will be directly applicable within the European Union (EU) from 1 January 2018 and will not require transposition by domestic United Kingdom (UK) legislation. This regulation will oblige manufacturers and distributors of products that fall under it to provide a Key Information Document (KID) that clearly describes the product features, costs and risks to retail investors before they invest. Following the UK leaving the EU, the FCA has noted that the PRIIPs Regulation will form part of the body of EU legislation that is converted into UK law. The BestX® FX Best Execution Analytics can be a substantial aid in meeting the PRIIPS regulations as relate to FX. The application will allows users to assess the FX price received against an independent consolidated measure of the mid price in accordance with the RTS.
Nov 26 2014
PRIIPS Regulatory Technical Standards (RTS)
Mar 08 2017
On June 28 2017 the FCA released its Asset Management Market Study Final Report (MS 15/23) in which it proposed an overall package of remedies to make competition work better, and protect those least able to actively engage with their asset manager. The study found that on trading and execution costs, "most firms did not have adequate management focus, front office business practices or supporting controls to meet our current requirements on best execution". The study also found that firms can earn significant administration fees on top of the AMC. The package of remedies will increase the transparency of costs so that those seeking information can get it.
The study emphasised the changes due to come into place at the start of 2018 under PRIIPs and MiFID II. "The new provisions under MiFID II go beyond what is currently required and will introduce new requirements for firms to provide aggregated and on-going information on all costs. Firms will, where applicable, need to provide the aggregated information to the client on a regular basis, at least annually, for the lifetime of the investment. Firms must also provide an itemised breakdown of costs when the client requests it. These changes will give consumers greater understanding of the full costs and charges of the investment products and services that they are buying. Both PRIIPs and MiFID II will require firms to calculate and disclose indirect costs such as transaction costs and to present charges as a cash amount in cost disclosure documents. This will allow the client to understand the overall cost as well as the cumulative effect on the return of the investment." To learn more, please see the FCA Asset Management Study website.
The study also highlighted that reforms under MiFID II mean that there will be greater obligations around best execution for asset managers. The new, more comprehensive best execution provisions in MiFID II will also strengthen the content and quality of disclosure to clients. Asset managers will be expected to step up their efforts to obtain the best possible result for their clients when placing orders with brokers on behalf of their clients. They will also be required to provide greater transparency on execution quality including the top five entities to which they sent orders for execution in the preceding year. The FCA noted that there is also an expectation that these requirements will increase firms’ monitoring of their own execution quality.
BIS: Foreign Exchange Working Group
FX Global Code published
May 25 2017
Financial Stability Board (FSB)
Bank of England
Financial Conduct Authority (FCA)
MiFID II - Policy Statement II
Jul 03, 2017
MiFID II - Policy Statement I
Mar 31, 2017
MiFID II Overview
Jan 26, 2017
Principles for Business
Markets in Financial Instruments Directive / Regulation (MiFID / MiFIR)
MiFID II European Commission Delegated Acts
ESMA Q&A on Investor Protection under MiFID II
Nov 10, 2017
MiFID II transitional transparency calculation
Sep 11, 2017
Commission Delegated Regulation 2017/576 on regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution (RTS 28 - Top Five Execution Venues) - Official Journal of the EU
Mar 31, 2017
Commission Delegated Regulation 2017/565 on organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (defining spot and derivative contracts relating to currencies) - Official Journal of the EU
Mar 31, 2017
Delegated Directive with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits
Apr 7, 2016
MiFID II Directive 2014/65/EU
Best Execution under MiFID
MiFID I Directive 2004/39/EC