The FCA has published its policy statement and final rules confirming that it will ban (i) payments from product providers to platforms, and (ii) cash rebates of product charges by product providers to consumers, in respect of sales of retail investment products. This is broadly in line with the proposals in CP12/12 and comes just over three years since reforms to the regulation of platforms were first proposed.  The FCA has made some important adjustments to the new rules, notably by bringing execution-only sales within the scope of both bans (not just the ban on payments from product providers to platforms as previously proposed).  It seems that the RDR was only the beginning of reform in the retail distribution market.

Firms now have just less than a year to make potentially significant changes to business models, as the new rules come into force on 6 April 2014.  Platforms will have a further two years to move existing customers to the new 'platform charges' model, as a transitional period for legacy business will end on 6 April 2016.

The impact of these rules will be a significant addition to those already incurred in implementing the wider RDR initiative.  Estimated industry compliance costs are now £33m – £67.2m initially (higher than the original estimate of £17m – £43m) and £8.3 - £14.9m (increased from £4m - £11m) per year thereafter.

Key differences to rules consulted on in CP12/12

  • The FCA has clarified that product providers can directly pay platforms for certain events, including advertising, and for management information.  
  • The ban on product provider payments to platforms applies to legacy business as well as new business.  The two year transitional period for legacy business means that platforms can receive payments from providers in respect of sales executed before 6 April 2014.  But from 6 April 2016, legacy business must be remunerated by platform charges. This is different from the treatment of legacy business under the RDR.
  • The prohibition on product providers rebating product charges in cash to clients will apply to execution-only sales of retail investment products, not just advised sales. 
  • When a rebate due to the customer does not exceed a value of £1 per fund, product providers can pay this to the consumer as cash.


  • "Shortly" – consultation on clarification to definition of "platform service"
  • 6 April 2014 – bans on payments to platforms in respect of sales post 6 April 2014, and cash rebates, to take effect
  • 6 April 2016 – end of transitional period for product provider payments on legacy business
  • "A later date" – consultation on read-across of ban on cash rebates to non-platform markets

Wider related developments

  • RDR thematic work:
    • Now – Phase 1
    • June 2013 – FCA report on phase 1
    • Q3 2013 – Phase 2
    • Early 2014 – Phase 3
  • EU Regulation on Packaged Retail Investment Products:
    • 23 October 2013 – EU Parliament plenary vote 
  • MiFID review
    • 8 October 2013 – EU Parliament first plenary reading

Ban on payments from product providers to platforms

  • The FCA is going ahead with the ban on payments from product providers to platforms, in order to remove product bias on platforms, to assist consumers in making price comparisons across different products and platforms, and to increase competition and costs transparency.  This does not prevent payments being made by intermediaries to platforms in return for services. 
  • This means that platforms must be remunerated by fees previously disclosed, agreed and paid by clients. 
  • Platform charges cannot vary inappropriately according to the provider or type of retail investment product.
  • This ban will apply to both advised and non-advised sales of retail investment products on platforms. 
  • This new rule is in line with the guiding objective of the RDR.  It is also consistent with that previously proposed in CP12/12 (June 2012), and PS11/9 (August 2011) and takes us back to the original proposal in DP10/2 (March 2010) which had been rejected in CP10/29 (November 2010) in favour of increased transparency.


  • There will be four exemptions from the ban.  Product providers will be permitted to pay platforms for work incurred in:
    • advertising products on the platform – provided that the payment could not result in business being channelled to the firm, other than the "normal effect of general advertising";
    • providing the product provider with management information about investors – so as to assist product providers in obtaining knowledge about the end consumer;
    • correcting a pricing error by the product provider; and
    • dealing with a "corporate action" by the product provider.
  • Product providers seeking to rely on these exemptions must be prepared to evidence that any such payments are reasonable and proportionate, and do not vary inappropriately according to the firm.

Legacy sales

  • The ban on payments from product providers to platforms will apply from 6 April 2014, in respect of new sales of retail investment products executed after this date. In acknowledgement of the operational difficulties in moving all client assets to a platform-charging basis in less than a year, and possible undesirable tax consequences for consumers[1], there will be a two year transitional period for legacy business.  As from 6 April 2016, platforms must be remunerated by client charges, on all business, including legacy business.  
  • This will mean that platforms can continue to accept payments from product providers, and product providers can continue to pay platforms, in respect of advised and non-advised sales of retail investment products executed before 6 April 2014. 
  • This is unless the investment on the platform "changes", in which case a platform charge would apply.  A change would include:
    • an increase in regular contribution to the product (although platform charges would only be payable in respect of the additional amounts);
    • a fund switch within a wrapper; and
    • the re-registration of assets onto another platform.  
  • This is different from the legacy business rules which apply to RDR adviser charging (COBS 6.1A.4AA) because:
    • there is no end date for those rules; and
    • they only apply in respect of advised sales. 

It is not clear why the FCA has taken a different approach and little justification is provided, other than to say that "the markets are different".

Annual management charges

  • The final rules clarify that the ban precludes product providers from paying, and platforms from receiving, a share of annual management charges (COBS 6.1.E(5)1).  However, platforms can receive a share of the annual management charge from an authorised fund manager, if the platform passes the share to the client in the form of:
    • additional units; or
    • cash (provided that it does not appear to off-set, or off-sets any adviser or platform charges (COBS 6.1E.10-12).

Ban on cash product rebates

  • Product providers will not be allowed to rebate product charges in cash to retail clients for any sales of retail investment products. 
  • Product providers can still however offer:
    • rebates in the form of additional units invested in the fund;
    • rebates to platforms in cash, provided this is passed on in full to the client in additional units; and
    • cash rebates which have a value of £1 or less per month for each fund held on the platform (as this would be unlikely to offset any adviser or platform charges).
  • The ban will apply equally to advised sales of retail investment products sold on platforms and other distribution channels.
  • Crucially, it will now also apply in respect of both non-advised and advised sales of retail investment products.

Possible read-across

  • The FCA has raised again the possibility of extending its rules on banning rebates to firms which provide similar services to platforms, such as SIPP providers, life companies, and execution-only brokers.  Whilst it is not consulting on this for now, it will do so in the future, including on introducing the ban on discretionary fund managers.

Definition of platform service

  • The definition of 'platform service' is still not final, as the FCA wishes to amend it to clarify that execution-only firms that 'white-label' a platform and provide custody services are captured.  Firms will be given the opportunity to comment on this in a consultation paper which will follow "shortly".