FESCO Conduct of Business Proposals - Categorisation of Investors - ACT Response

M Fabrice Demarigny
Secretary General
Forum of European Securities Commissions
17 Place de la Bourse
75082 Paris Cedex 02
France

By email
14 May 2001

Dear M. Demarigny,

RE FESCO Conduct of Business Proposals - categorisation of investors

The Association of Corporate Treasurers is a professional body with 3,000 members who include the treasurers of most large companies in the UK. We have been active in working with the Financial Services Authority to develop a regulatory system that provides our members with a suitable framework for their dealings in the financial markets, providing protection that is appropriate for a company's level of expertise.

Most large companies in the UK operate as professionals in the financial markets, and some of them have extremely sophisticated treasury organisations. In the transition to the new regulatory regime in the UK we anticipate they will continue to operate as professionals, although they do have the choice of reverting to the default category of "intermediate" client. We see this intermediate category as being suitable for less sophisticated smaller companies.

We are very concerned that FESCO's proposals for the categorisation of investors would automatically place corporates in the retail category. We believe this is appropriate only for the very smallest companies with no expertise at all. Our particular objections are as follows:

• there are no obvious grounds for supposing that companies operating in the financial markets need more protection than they have at the moment. In the very rare case of a company getting into trouble through such activities, the answer is to improve corporate governance and the skills and expertise employed by the company, not to impose a blanket of additional regulation over the whole market.
• if under your proposals a significant number of companies fails to opt up to professional status, we believe that a two-tier market will develop whereby those companies taking advantage of retail protections will be restricted in the product range and size of transaction they can access and will not have access to competitive pricing.
• for those wishing to continue to access the markets with competitive pricing, having to undergo an opt-up process with each of their bank counterparties from the retail category to the professional status they currently enjoy, will be a costly and quite unnecessary administrative burden.
• in either case, the result will be increased costs for all parties and a loss of international competitiveness.

We would therefore strongly advise that a mechanism be put in place to enable companies of a reasonable size and level of expertise to be automatically categorised as professionals. This mechanism should include a provision allowing companies to negotiate additional protections if required, though we believe it would be most unusual for a company to want to shift to the fully protected position of a retail customer. We would be happy to review any proposals you might think appropriate.

We hope you find our comments constructive and we would be happy to discuss them further. If you wish to do so, please contact our technical officer, Caroline Bradley, on 020 7213 0738 or at cbradley@treasurers.co.uk1.

Yours faithfully

Judith Harris-Jones, Chairman
Technical Committee

Cc: Michael Parker Esq
Financial Services Authority

• 1. Contact details may have changed since publication. Refer to the ACT Press Room for the latest contact information for the ACT Policy & Technical team.