The FCA’s latest consultation paper highlights what new investment research funding and payment rules are set to look like, with asset managers given greater freedom of choice in terms of how they pay.
A key aspect of the new rules is the allowance of ‘bundling’ of payments for third-party research and trade execution. Prevention of payment bundling was introduced in 2018 under Mifid II due to various concerns, including that it could lead to less disciplined spending on duplicative or low-quality research.
Now, payments would exist alongside those already available, such as payment from an asset manager’s own resources or even a dedicated account.
Speaking in an official announcement, Sarah Pritchard, executive director, markets and international at the FCA, said: “High quality, easily accessible investment research is a vital part of a healthy, dynamic capital market. It supports the decisions investors make.
“We are proposing to provide more options on how to pay for such research, helping boost competition and making it easier to buy research across borders.”
The ease of cross-border activity is due to the proposed new plans being compatible with rules governing research payments in certain other major jurisdictions, said the watchdog.
According to the watchdog these proposals have been developed following feedback from research providers and end investor representatives, as sell- and buy-side firms, the latter of which was gathered via detailed surveys which collected quantitative evidence.
The analysis showed that asset managers are largely getting the research they need under the current rules, however the FCA added that despite the relative effectiveness of the current set up, it is operationally complex and skewed in favour of larger asset managers, as well as being restrictive to UK asset managers’ ability to buy investment research produced outside their jurisdiction.
The new rules are therefore set to be more suitable for firms or varying business models and sizes, effectively boosting competition.
The consultation is understood to be closely aligned with the Kent review, published by Hogan Lovells lawyer Rachel Kent, who led the UK’s Investment Research Review under the Edinburgh Reforms.
She published recommendations that the UK government has accepted, which included paving the way for a new ‘Research Platform’ that would provide a one-stop-shop for firms looking for research experts.
The FCA is set to produce final rules in H1 2024, dependent on the quality of the feedback received.