| LONDON, July 31
LONDON, July 31 Banks and brokers are failing to
give the best trading deals to customers and could face
enforcement action, Britain's Financial Conduct Authority (FCA)
said in a review on Thursday.
The FCA checked whether 32 banks, brokers, wealth managers
and interdealer brokers had complied with a European Union law
that requires them to take all reasonable steps to get the best
possible deal when executing orders on behalf of customers.
Assessment of transactions in the EU's biggest securities
market involves not only price but also speed of execution, size
of order and exchange and clearing costs.
"Firms told us that best execution is a simple commercial
imperative - yet our review shows many firms unacceptably fail
to put their clients' interests first, undermining market
integrity and inhibiting competition," David Lawton, the FCA's
director of markets, said in a statement.
"We will require firms to take immediate action to address
all relevant areas of our findings."
Best execution applies to trades in stocks, bonds, foreign
exchange, contracts-for-difference, exchange-traded-funds and
All firms reviewed failed to show that traders had a
consistent understanding of what best execution actually means.
Some firms used "carve-outs", or agreements in which customers
allow firms to opt out of rules, which are not allowed.
The FCA said every basis point saved in all trading by all
market participants could translate into 264 million pounds in
additional returns for customers a year.
The review found that firms, rather than trying to apply the
rules properly, assumed customers would simply switch to a rival
if they were unhappy.
Among other practices, the watchdog wants to crack down on
so-called payment for orders, when the broker gets a commission
not only from the customer but also from the trading venue on
which the order is executed, a double charge seen as a conflict
The review found that four firms attempted to evade the
rules by changing the description of services they offered so
that they could continue to get paid for order flow.
"The firms we reviewed have ceased this practice, and the
FCA will take action against any firm where it continues," the
The watchdog warned in its regular newsletter in February
that parts of some markets, such as foreign exchange and
spread-betters, should be aware that they, along with stock
markets, come under the best execution law.
The FCA fined retail currency broker FXCM 4 million pounds
in February for withholding profits worth about 6 million pounds
from being passed on to UK customers under best execution rules.
Best execution has been a legal requirement under the EU's
Markets in Financial Instruments Directive since November 2007.
The rules are on track to get tougher in a revision of MiFID
from the start of 2017, when brokers must take "all sufficient
steps" to give customers the best deal.
The FCA said that best execution and payment for orders may
be included in the watchdog's in-depth review of competition in
wholesale markets over the coming year.
(editing by Jane Baird)