Industry mulls UK regulator’s ‘assertive stance’ on MiFID II unbundling

Despite gaining clarity on unbundling rules, industry participants have noted the UK’s stricter stance on implementation.

Following the publication of the UK regulator’s consultation on unbundling, industry participants have noted its more ‘assertive’ stance on implementing the rules.

Chief executive officer at ITG Europe, Rob Boardman, explained the Financial Conduct Authority’s (FCA) consultation has finally provided some much needed clarity on unbundling regulation.

“The key takeaway from this consultation is that, after months of uncertainty, RPAs are very much a viable option.”

However, Boardman noted that “the ghost of the FCA’s chief predecessor Martin Wheatley is still very much lurking in this paper.”

He said the FCA’s contrasting views to other European regulators adds weight to the claim that the “UK regulator has a more assertive style and is much stricter in terms of what it permits.”

Co-founder of RSRCHXchange, Vicky Sanders, echoed Boardman’s thoughts, explaining the FCA has left “very little wriggle room,” unlike the French regulator.

Sanders said: “They have made very clear their approach to unbundling, both explicitly citing which recitals from the delegated acts will be directly transposed into COBS and reminding the market of the over-arching principles at hand and the intended outcomes.”

The FCA’s consultation stated research charges deducted through a broker - alongside transaction fees - should be ‘swept’ to an RPA immediately following the transaction. 

However, if the research passes through an executing broker, RPA money flows must be ‘ring-fenced’ and separately identifiable.

Chief executive officer at independent research provider ResearchPool, Pedro Fernandes, explained the process the FCA outlined is ‘robust’.

He added: “If [holding CSA money] was possible, it would eventually become a barrier to unbundling, so it creates a level playing field amongst research providers.”

Market participants agree, however, that despite a stricter approach to implementation of unbundling, the end result will bring about the desired transparency.

Chris Turnbull, co-founder of Electronic Research Interchange (ERIC), said the consultation will “help focus research providers and asset managers on the significant challenge of unbundling research.”

He added: “Platforms strengthen the procurement of investment research by offering a flexible tool for fund managers and research providers to meet and value their interactions in a transparent way.”

RSRCHXchange’s Sanders agreed with Turnbull, explaining that, “The FCA implementation of MiFID II will ensure that a transparent, priced research market emerges and that research becomes a core and fixed cost of doing business.”

The FCA has requested comments on any suggested modifications to RPA rules from the consultation by 4 January 2017.

It will provide feedback in the first half of next year.