Hopes Rise FSA Will Backtrack On Execution Proposals

Hopes continue to rise that the U.K. Financial Services Authority will drop its proposed interpretations of Markets in Financial Instruments Directive's best execution provisions. The FSA proposed best execution "benchmarks" that the U.K. industry rejected as going beyond MiFID and therefore being too strict and impractical. "The FSA [was] so taken aback by the response of the industry it was forced to reconsider," said Richard Stones, consultant at law firm Lovells in London. "The idea is unrealistic. I do not see how the FSA can maintain [its] stance on this."

MiFID requires the creation of compliance policies to make sure institutional customers get best execution. The FSA proposed that firms provide external data to prove best execution--so-called "benchmarks"--but retrieving the data was called a burdensome chore (CR, 7/10). No decision is due on this until the end of October but some have suggested that widespread negative response to the proposals have led the FSA to rethink. Stones said he believes that the FSA will "copy out" the rules in the U.K. but provide no guidance on how to execute, leaving that the responsibility of the industry. Ash Saluja, partner at CMS Cameron McKenna in London, agreed. Saluja said he is sure that the FSA will "back away" from the proposals completely.

David Cliffe, FSA spokesman, said that the FSA is still looking through the responses and that no decision has been made. Cliffe said the FSA expects to produce a paper at the end of next month outlining its revised proposals. Michael Mckee, director at the British Bankers' Association, said the BBA remains in dialogue with the FSA on this matter. Timothy Baker, director at the London Investment Banking Association, said that he was not aware of any decision already made and also said they remained in consultation with the FSA. Both associations lobbied against benchmarks.