Rule on Inducements - COBS Provision: Difference between revisions

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{{nuts|COBS|2.3.1}}
{{nuts|COBS|2.3.1}}
===Retrocessions for fund aggregators===
you are a {{tag|MiFID}} entity (we are) there are three categories:
*Those providing portfolio management services or independent advice
*Those not providing independent advice (basically anyone else)
For the first two there is an outright prohibition on retaining rebates under {{tag|MiFID II}}. Everything must be passed in full through to the ultimate client. These entities therefore tend to opt for non-[[retrocession]] share classes open only to aggregators offering a certain volume that have a net management fee (so in other words the benefit of the discount naturally flows through to ultimate client and can’t be retained by the intermediary, and there’s no need for the brain damage of divvying up the rebate).
For others it isn’t prohibited but the firm would need to demonstrate (per COBS {{cobsprov|2.3A.3}} that the payment “enhances the quality of the service” it provides to its our client, and fully disclose it. The level 2 regulations interpret this strictly, and impose more procedural requirements, than many firms currently apply to third party payments and benefits.
====A bit like [[PFOF]]?====
[[Payment for order flow]] is the practice of an [[investment firm]] that executes client orders (typically a [[broker]]) receiving a [[fee]]/[[commission]] not only as an [[agent]] from the client originating the order but also from the [[counterparty]] with whom the trade is then executed. [[PFOF]] is not allowed because it does not satisfy the [[rule on inducements]].
The read across is instructive:  Some (but not all) of the points the {{tag|FCA}} highlighted for {{tag|PFOF}} prevail here, if you substitute “firm” for “broker” and “MMF provider” for “[[market maker]]”
*It creates a conflict of interest between the firm and its clients because the firm is incentivised to pursue payments from “MMF providers” rather than to act in the best interests of its clients.
*Forcing MMF providers to ‘pay-to-play’ can distort competition and create barriers to entry and expansion.


{{seealso}}
{{seealso}}
*COBS {{cobsprov|11.6.3}} et seq. regarding ({{cobsprov|Use of dealing commission}}), and also [[corporate access]].
*COBS {{cobsprov|11.6.3}} et seq. regarding ({{cobsprov|Use of dealing commission}}), and also [[corporate access]].
*{{cobsprov|2.3.1}} - the {{cobsprov|Rule on Inducements}}
*{{cobsprov|2.3.1}} - the {{cobsprov|Rule on Inducements}}
 
*[http://www.kwm.com/en/uk/knowledge/insights/the-mifid-ii-inducements-regime-20161026  Good article on rebates and retrocessions]
{{cobsanatomy}}
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