Podcast Discusses FCA Proposal to Permit Soft Dollar Research Arrangements with U.K. Asset Managers

Under a recent FCA consultation proposal, U.S. broker-dealers would be able to provide research to U.K. asset managers under soft dollar arrangements. In a "Global Regulation Tomorrow Plus" podcast featuring Norton Rose Fulbright London Partner Jonathan Herbst and Of Counsel Uzmah Yunis, U.S. Securities Partner Mark Highman described the significance of the FCA’s proposal from a U.S. perspective. (See related coverage.) 

Mr. Highman said the FCA proposal would enable U.S. broker-dealers to provide research to U.K. asset managers under soft dollar arrangements, allowing U.S. broker-dealers to fall within an exclusion from regulation as an "investment adviser" under the U.S. Investment Advisers Act. (Currently, broker-dealers that receive cash payments for research are subject to registration as an investment adviser, unless they can fall within an exemption, and are subject to regulatory requirements applicable to investment advisers, in particular, disclosure and consent requirements where an investment adviser transacts with an advisory client.)  He said that the current arrangements under which EU managers are required to make a separate cash payment for research constitutes "special compensation" for investment advice, and that brings the US broker-dealer receiving those payments within scope of investment adviser regulation.

According to Mr. Highman, the SEC addressed this issue in 2017 by providing relief to broker-dealers, enabling them to receive cash payments from MiFID managers without being subject to regulation as investment advisers. However, he said, the SEC let that letter expire in July 2023.

In the podcast, Mr. Highman also addressed the FCA’s discussion of commission sharing arrangements (in the U.S. "client commission arrangements"), noting that the FCA proposal is intended to align with those kinds of payment arrangements in other jurisdictions, including in the U.S.