LONDON (Reuters) - Asset managers in the European Union can continue paying for research and broking under an existing and widely-used arrangement, subject to conditions, a European Commission document showed on Monday.
More and more asset managers in countries like Germany, France, Britain, Sweden and Denmark have begun using commission sharing agreements or CSAs.
The agreements pay a broker who executes share trading orders, with the broker then allocating a portion to pay for the stock research fed to asset managers.
As part of a sweeping reform of EU securities markets known as MiFID II, the bloc’s securities watchdog ESMA wanted “full unbundling” of the cost of research and trading to give investors more clarity on what they are paying ultimately for.
ESMA wanted asset managers to pay for research from a separate account, with charges agreed in advance. Asset managers and brokers argued that spelling out fees in advance should be enough.
In a win for the industry, the EU’s executive European Commission, which will turn ESMA’s recommendations into law, has opted for a more flexible approach on CSAs, the document seen by Reuters showed.
The document sets out the conditions under which a single payment could continue, subject to some conditions, meaning CSAs won’t face the ban that asset managers feared when MiFID II comes into force, most likely at the start of 2018.
A CSA could continue as long as it included a breakdown of what is charged for, the document showed.
“Every operational arrangement for the collection of client research charge, where it is not collected separately but alongside a transaction commission, has to indicate a separately identifiable research charge,” the document said.
A single payment cannot be linked to the volume and/or value of transactions executed on behalf of customers, it adds.
This condition follows ESMA concerns that CSAs allow the amount charged for research to be determined by the volume of transactions, giving an incentive for brokers to trade more than is required with the cost ultimately born by investors.
The document is still at the draft stage and could be changed by the EU executive before it becomes law. EU states and the European Parliament will also have an opportunity to comment.
Editing by David Holmes