Regulator floats reversal of key part of Mifid II as current rules ‘restrict’ UK asset managers
The Financial Conduct Authority (FCA) has outlined plans to help firms pay for investment research in the wake of the government’s Edinburgh Reforms.
It said today that following a consultation, it will open up new doors by giving them more freedom and choice in how they pay, amid concerns it makes UK asset managers internationally uncompetitive.
The paper published today said while companies are “largely getting the research they need under the current rules”, more change was needed.
It found that current options are “operationally complex and resource-intensive to maintain”, and were having “negative effects on UK asset managers”.
It added they “can be operationally complex and may, in some instances, favour larger asset managers.”
The FCA also said existing rules may “restrict UK asset managers’ ability to buy investment research produced outside the UK.”
The Edinburgh Reforms was designed to “drive growth and international competitiveness in UK financial services”, including in investment research.
In July 2023, an independent panel chaired by Rachel Kent published its report – the Investment Research Review (IRR).
The review recommended ” allowing additional optionality when paying for investment research,” which is what the FCA’s consultation focused on.
The first of the FCA proposals is a new option for investment finance, “enables firms such as asset managers who wish to buy investment research to use joint (bundled) payments for third-party research and execution services.”
It said this new option will “exist alongside those already available”, including from a firm’s “own resources .. and payment for research from an Research Payment Account (RPA) for specific clients.”
The second change was conditional, saying firms using the first option would now require “a formal policy on use of the approach”, which includes a clear “budget for the amount of third party research to be purchased”.
The FCA said the new proposals would give “asset managers greater freedom in how they pay for research, supporting their investment decisions.”
It will allow the ‘bundling’ of payments for third-party research and trade execution and would exist alongside those already available”, such as payment from an asset manager’s own resources or from a dedicated account.”
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.”