On 27 June 2017, the Financial Conduct Authority (FCA) published its Policy Statement PS17/13 'Investment and corporate banking: prohibition of restrictive contractual clauses' which sets out new rules banning the use of clauses that restrict a client's choice of future providers of primary market services. The new rules will apply from 3 January 2018 and will be published in the FCA's Conduct of Business Sourcebook (COBS).


The FCA proposed the new prohibition in its consultation paper 16/31 (CP) in October 2016 following its market study of the investment and corporate banking sector. In its final report, the FCA identified various practices by firms which could hinder competition in the sector, such as the use of restrictive contractual clauses by firms for future primary market services. The FCA was concerned that clients may feel pressurised into mandating a firm's services when they may not be the most appropriate supplier for the work. Firms should 'compete on the merits of their services', rather than restricting clients' choice.

Click here to read our article for further background on the consultation paper and the FCA's market study.

What is banned?

Firms are banned from entering into agreements with a provision that gives them a right to provide future primary market services to their clients. 'Primary market services' are services relating to equity capital markets (ECM) and debt capital markets (DCM) transactions (such as the structuring, underwriting and/or placing of securities) and M&A advisory services.

This means that 'right of first refusal' and 'right to act' provisions relating to primary market services are banned from use in firms' written contractual arrangements with their clients (but note that the FCA would be concerned if pressure was placed by firms in oral agreements with clients to circumvent the rule).

The ban applies to unspecified and uncertain future services only. It is not designed to prohibit parties agreeing the terms of a 'specific piece of future business' which the firm knows it will undertake.

What is not banned?

The ban will not apply to:

  • written agreements to provide primary market services relating to bridging loans. These loans provide short term financing with the intention that it will be replaced with another form of financing (such as a share or debenture issue). The FCA sets out guidance on some indicative characteristics of a bridging loan, such as its short term nature and that it would provide that any proceeds from a future financing are used as a mandatory prepayment of the loan. The FCA notes that warehouse facilities will fall within the definition of a 'bridging loan' and will also not be subject to the ban;
  • 'right to match' provisions where the firm has a right to be approached to match a third party offer (unless the provision obliges the client to accept the firm's services if it matches the terms of a third party);
  • 'right to pitch' provisions for future business; and
  • 'tailgunner clauses' which are designed to recover fees for work already undertaken by a firm if the client decides to go elsewhere for the same service or transaction.

What is the geographical scope?

The ban will apply where the services are carried out from a firm's UK establishment. The ban prohibits agreements for such services entered into by the firm's UK establishment or its overseas branches (but not agreements entered into by the firm's subsidiaries or affiliates). The ban applies irrespective of the client's location.

When will the new rules apply?

The ban will not apply to existing agreements - but will apply to agreements entered into from 3 January 2018. Firms will have until that date to change their template agreements, internal guidance and procedures.