The Financial Services Authority (FSA) is set to make concessions over its controversial platform cash rebate ban by allowing payments to be made for small investment amounts.
New Model Adviser® understands the regulator has been in talks with members of the platform sector over allowing cash rebates for de minimis amounts, and has suggested allowing the payments where the cash rebate amounts to less than £1 per month. It would allow investors to place around £130 a month in an individual fund and receive a cash rebate rather than a unit rebate, although the move will not affect funds with clean share classes.
A source familiar with the situation said: ‘The FSA has come up with a figure for a de minimis for cash rebates... If the amount of rebate is £1 or less per holding per month, that is an awful lot of very small transactions, which is an administrative burden for platforms because of the sheer volume. You will be doing it for millions of small holdings.’
The FSA first proposed its platform cash rebate ban in a November 2010 consultation paper, and the plans survived throughout its later platform pronouncements.
It is understood the exemption for smaller payments will be included in its policy paper, due to be published later this year. It would follow lobbying from the Tax Incentivised Savings Association, although it had proposed the exemption should allow rebates of up to £10.
David Ferguson (pictured), chief executive of wrap platform Nucleus, said the change would affect around a third of its users.
‘It would capture quite a lot of clients on Nucleus and mean a third of clients would continue to get [cash] rebates,’ he said. ‘It will also affect fund supermarkets more than wraps because they typically have more lower value clients.’
However, he warned that it could lead to complications by forcing platforms to operate two rebate systems.
Verona Smith, director of marketing at Cofunds, said the platform provider would support the move. ‘If this is the case, it is absolutely supported by Cofunds and it is a big deal that will affect thousands of clients. £10 would have been better but introducing a de minimis is a better outcome for platforms and clients as we won’t have to buy back parts of units for a tiny amount.’
The FSA is also understood to be considering concessions to its ban on fund manager payments to platforms, allowing them in one-off cases where platforms are adhering to regulatory requirements on behalf of fund groups, such as where funds merge or close, or pricing errors are rectified.