SIFA 9.4 Inducements and Commissions

You must ensure that your firm, or anyone acting on behalf of it, does not conduct business under arrangements that are likely to result in a material conflict with your duty to your customers (COB 2.2.3 R). This includes any inducement being given or received by an unregulated associate. There are similar requirements in COB, ICOB and MCOB but the nature of business covered results in specific requirements for each. COB 5.7 covers disclosure of charges, remuneration and commission. In relation to business involving packaged products, remuneration and commission information is included in the menu (COB 4.3).

Principles 1 (Integrity) and 6 (Customers' interests) apply to the issue of inducements.

The following sections are relevant.

• Section 2.2 of COB and in particular COB 2.2.3 R requires a firm to be satisfied that it or anyone acting on its behalf does not conduct business under arrangements that are likely to result in a material conflict with its duty to its customers. This rule is relevant to firms who may consider making or receiving payments to secure their distribution arrangements following depolarisation.
• Selling packaged products is on the basis of disclosable commission or fees. Restrictions on the arrangements under which commission may be paid to a firm in relation to the sale of a packaged product are set out in COB 2.2.5 E. Financial assistance from product providers is covered by COB 2.2.5A E.
• In addition, some indirect benefits are permitted. These are set out in COB 2.2.6 G and the table under COB 2.2.7 G. Reasonable indirect benefits now include assistance for the development of software or other computer facilities but only to the extent that the indirect benefits will generate equivalent cost savings to the provider (who must not be part of your immediate group) or to consumers.
• Record-keeping requirements: COB 2.2.20 R.

For any firms that deal in investments, COB 2.2.8 R to COB 2.2.19 R is relevant, as it discusses soft commission. We issued CP05/5 'Bundled brokerage and soft commission arrangements' in March 2005 which includes proposed rule changes. Hence you should check your understanding of these rules remains current.