Summary: On 27 June the FCA published a policy statement with new rules banning the use of clauses that restrict a client’s choice of future providers for primary market services (i.e. debt capital market, equity capital market and M&A services).


In 2016 the FCA published a consultation paper proposing to ban the use of:

  • ‘Right of first refusal’ clauses which prevent clients from accepting a third party offer to provide future services unless they have first offered the mandate to the bank or broker on the terms proposed by the third party; and
  • ‘Right to act’ clauses which prevent clients from sourcing future services from third parties, regardless of any potential third party offers

in investment and corporate banking engagement letters where they cover future corporate finance services carried out from an establishment in the UK. The proposals were aimed at protecting smaller corporates who were faced with pressures to reward their relationship/lending bank or corporate broker with future services.

New rules

Under new rules a firm will be prohibited from entering into an agreement with a client with a ‘Right of first refusal’ clause. The agreement may, however, contain a ‘right to match’ clause where a firm is offered the ability to match an offer from a third-party but with the client ultimately having complete discretion in the decision process.

The ban applies to written contractual arrangements for future primary market services entered into after 3 January 2018 and carried out from an establishment in the UK.

These provisions will not apply to:

  • existing agreements nor to specific pieces of future business that firms know they will undertake. For example, so-called ‘tailgunner clauses’ which are designed for recuperating fees for work already undertaken by a financial institution if the client decides to use another firm for the same service; or
  • future service restrictions in bridging loans provided the commercial intent is to replace the loan with alternative, normally longer term, funding.

These amendments have not changed substantially from the original proposals and are part of the FCA’s drive to ensure effective competition in the market for firms’ clients. In the meantime, firms should be reviewing their engagement letters/terms and conditions to ensure that they are compliant from 3 January 2018 (if not before).

Find a full copy of the policy statement here.