Better than best execution? The Financial Services Authority’s new proposals to reform UK best execution requirements

Abstract

The Financial Services Authority’s (FSA) proposals to revise best execution obligations will involve an extensive departure from existing practices. In particular, achieving the ‘best price’ will no longer be paramount. Firms will have to factor into the best execution equation other direct and indirect costs of trading which are relevant to achieving ‘the best outcome’ or ‘quality of execution’ for the consumer. This will make the assessment far more complex. The existing timely execution rule, making immediacy of execution the benchmark, is likely to be scrapped, to be replaced by an obligation to deal at a time best calculated to deliver the desired result for the customer. The existing SETS ‘safe harbour’ may also be removed and there will be extensive new customer disclosure obligations in relation to firms’ execution policies and procedures, including information as to deal flow through potential individual execution venues, and execution specific disclosures of conflicts of interest. Firms will also be obliged to review at least annually their execution arrangements and make changes if in the interests of their customers, and the FSA proposes rigorous transaction monitoring obligations to ensure that the revised best execution requirements are being met in practice.