Despite its protestations to the contrary, the Regulator has said remarkably little on the matter of best execution since the current requirements were introduced through MiFID. Now, with its thematic review (TR 14/13), the FCA has broken cover.

You might be forgiven for supposing that the Regulator’s heart was never in the MiFID version of the requirement, but to be fair for once to the European authorities, the best execution requirements that we have today resulted largely from FSA’s extensive programme in which it reviewed the, by then, obsolete rules.

This is not the first time that the regulator’s attention has been drawn away from best execution. While the old world of a single centralised stock exchange was being swept away, the regulators of the day retained rules which presumed a single execution venue. Not until the turn of the century was the matter revisited. Having devoted time and attention to identifying the best approach, FSA was able to lead the way in the development of the MiFID re-write of the rule. But there it stopped. Having encouraged the adoption of a much more complicated structure than before, the regulator appeared to turn a blind eye to some very lightweight implementation of the new requirements.

So, just as everyone had been lulled into a false sense of security, the regulator emerged from its hibernation and decided that it was time to strike. It would be unusual if, having produced a thematic review, they then laid off. The working assumption must be that there is more of this to come. Having started, they will surely finish. So what should we expect? Strangely, apparently, there is no plan for further thematic visits, but that does not mean that Supervision will take no interest in best execution issues whenever the opportunity arises. And then they will look at a number of points. First they will unearth their copy of the thematic review and cherry pick those points that seem most pertinent in the circumstances. Secondly, but probably for the first time, they will start to take a proper interest in firms’ order execution policies, taking note that, whether raised in the thematic review or not, many policies pay little more than lip service to the obligation. Finally, they will look to see that the order execution policy is followed in practice. As ever, firms’ greatest liability will arise wherever they say one thing and do another.

And now? More than once in the review the FCA insists that firms should have a further and thorough inspection of their best execution procedures. Many will ignore that injunction; experience suggests that that is the wrong answer.