Expectations Of Firms Offering Fractional Shares

Update

Following the Treasury’s recent announcement of its plan to allow certain fractional share contracts as ISA investments, the FCA has taken the opportunity to clarify its expectations of firms offering fractional shares to the retail market under the Consumer Duty.

As with all businesses under the Consumer Duty, the FCA expects firms to act in good faith, avoid foreseeable harm, and enable and support consumers to pursue their financial objectives. Firms are therefore expected to carefully consider whether their fractional share offerings are delivering good outcomes for consumers. Characteristics of fractional share models that should be considered as they may impact consumer outcomes include:

• Any limits on transferability or the consumer’s ability to trade fractional shares.
• When fractional share trades will be executed, including whether the firm aggregates share orders to whole shares in order to fulfill trades and how this may affect the price for consumers.
• What fees and charges consumers will incur?
• Whether consumers understand if they will have voting rights or other shareholder rights based on their holdings.
• Whether consumers understand if they will receive dividend income based on their holdings.
• Whether consumers understand their ownership rights to their fractional holdings.

 Products and Services

Firms must ensure fractional share products and services are appropriately designed, meet the needs, characteristics, and objectives of the identified market, and avoid causing foreseeable harm to consumers in that market. The FCA expects firms to regularly review their products and services to ensure that they are meeting the requirements as set out above.

Price and Value

Firms must carry out a value assessment of their products and review that assessment on a regular basis. It is expected that when carrying out these value assessments firms consider the possibility of additional transactional costs where fractional share holdings cannot be transferred as well as fair value relative to the benefits that a subscription model to trade fractional shares provides.

Consumer Understanding

Firms must ensure that their communications surrounding fractional shares are likely to be understood by consumers and they should consider a testing process to gain assurance that any complex technical details are understood. It may be appropriate for firms to explain differences or expectations between holding a whole share as opposed to a fractional share.

Consumer Support

Firms should ensure they monitor the support they provide, take relevant feedback into account, and look for signs that may indicate that the design and delivery of their support is not sufficient to meet the needs of consumers.

Thistle can assist your firm by providing guidance when it comes to the above-mentioned assessments and reviews of your processes regarding fractional shares. Thistle is also able to assist in many additional ways relating to your firm’s compliance with the Consumer Duty.

Link: https://www.fca.org.uk/firms/fractional-shares