The regulator today published a review on whether further changes are needed to deliver a more transparent and efficient asset management sector for end investors.
The review on how firms use dealing commission - the charges paid by consumers for executing trades and external research, worth around £3 billion a year - found too few firms properly assess the value-added and cost of research paid for using client dealing commission.
The study of 17 investment managers and 13 brokers found only two investment managers operating at the level the FCA said it expects.
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The FCA said in a statement: "We are in active discussion with one firm on redress for clients after we found it used dealing commission to pay for market data services in full, despite clear statements that this was not consistent with our rules."
All firms should ensure that they have understood and applied the relevant rules.
The review also found that the practice of brokers bundling execution and research services makes it harder for investment managers to assess the value of research.
Based on these findings, the FCA has announced its support for proposed European reforms to further separate research from dealing commission, to encourage greater competition and more transparency over the price of research.
Speaking at an FCA conference on dealing commission, FCA chief executive Martin Wheatley said: "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.
"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".
Following consultation in November 2013, the FCA clarified its rules on dealing commission in May 2014 to make it explicitly clear that firms should only be paying for services directly related to executing a trade or substantive research out of dealing commission.
The review includes a discussion of the potential costs, benefits and competition impacts of potential changes to the relevant European legislation (MiFID II) that could significantly restrict the use of dealing commissions.
The FCA will work with industry and other regulators to ensure that the new European rules deliver the best outcome for investors.