After finding that asset managers don’t pay enough attention to getting value for the £3 billion ($5.47 billion) in dealing commissions they pay each year, the UK Financial Conduct Authority (FCA) says it will support European reforms to further unbundle research from commissions.

The FCA has published the results of a review of how firms use dealing commission, which are paid to execute trades and to pay for external research. It reports that it found that not enough firms “properly assess the value-added and cost of research paid for using client dealing commission”. It also found that the practice of brokers bundling execution and research services makes it harder for investment managers to assess the value of research.

The regulator says that, based on these findings, it has decided to support proposed European reforms to further separate research from dealing commissions, in a bid to encourage greater competition and more transparency over the price of research.

“The UK is a global centre for asset management — to keep this position it is crucial that investors are confident that they get a fair deal,” said FCA chief executive, Martin Wheatley, at an industry conference.

“There is a strong evidence to suggest the current model of using dealing commission to pay for research reduces transparency and creates a link between research spend and trading volume, without a clear assessment of the value this offers to investors. I want to see a level playing field across Europe to ensure the market delivers the best outcome for investors,” he said.

Earlier this year, the FCA clarified its rules to make it clear that firms should only be paying for services directly related to executing a trade or substantive research with dealing commissions. However, it says that its review of 17 investment managers and 13 brokers found only two investment managers operating at the level it expects.

It also found that at 11 investment management firms, the amount of research purchased with dealing commission remained linked to trading volume; one firm was using dealing commission to pay for market data; brokers are not explicitly pricing their research as a distinct service; and that brokers are not giving adequate consideration to their potential conflicts of interest when arranging corporate access.

The FCA also reports that it is in active discussions with the firm found to be using dealing commission to pay for market data to obtain redress for clients.