Share

Brokers fail to give customers best deals

London - Banks and brokers are failing to give the best trading deals to customers and could face enforcement action, Britain's Financial Conduct Authority (FCA) said in a review on Thursday.

The FCA checked whether 32 banks, brokers, wealth managers and interdealer brokers had complied with a European Union law that requires them to take all reasonable steps to get the best possible deal when executing orders on behalf of customers.

Assessment of transactions in the EU's biggest securities market involves not only price but also speed of execution, size of order and exchange and clearing costs.

"Firms told us that best execution is a simple commercial imperative - yet our review shows many firms unacceptably fail to put their clients' interests first, undermining market integrity and inhibiting competition," David Lawton, the FCA's director of markets, said in a statement.

"We will require firms to take immediate action to address all relevant areas of our findings."

Best execution applies to trades in stocks, bonds, foreign exchange, contracts-for-difference, exchange-traded-funds and other securities.

All firms reviewed failed to show that traders had a consistent understanding of what best execution actually means. Some firms used "carve-outs", or agreements in which customers allow firms to opt out of rules, which are not allowed.

The FCA said every basis point saved in all trading by all market participants could translate into £264m in additional returns for customers a year.

The review found that firms, rather than trying to apply the rules properly, assumed customers would simply switch to a rival if they were unhappy.

Among other practices, the watchdog wants to crack down on so-called payment for orders, when the broker gets a commission not only from the customer but also from the trading venue on which the order is executed, a double charge seen as a conflict of interests.

The review found that four firms attempted to evade the rules by changing the description of services they offered so that they could continue to get paid for order flow.

"The firms we reviewed have ceased this practice, and the FCA will take action against any firm where it continues," the watchdog said.

The watchdog warned in its regular newsletter in February that parts of some markets, such as foreign exchange and spread-betters, should be aware that they, along with stock markets, come under the best execution law.

The FCA fined retail currency broker FXCM £4m in February for withholding profits worth about £6m from being passed on to UK customers under best execution rules.

Best execution has been a legal requirement under the EU's Markets in Financial Instruments Directive since November 2007.

The rules are on track to get tougher in a revision of MiFID from the start of 2017, when brokers must take "all sufficient steps" to give customers the best deal.

The FCA said that best execution and payment for orders may be included in the watchdog's in-depth review of competition in wholesale markets over the coming year.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders