The UK financial regulator FCA has submitted plans for a new way of paying for investment research.
Analysis by the FCA shows that asset managers are largely getting the research they need under current rules. However, the current options available to UK asset managers can be operationally complex and may, in some cases, favor larger asset managers. The applicable rules may also limit the ability of UK asset managers to purchase investment research produced outside the UK.
As part of the government’s reforms in Edinburgh, an independent report on investment research suggested ways to improve UK markets. Now, the FCA has proposed giving asset managers more freedom in how they pay for research underpinning their investment decisions. The regulator said this greater choice should suit companies of different business models and sizes, helping to promote competition.
The new rules will allow third-party research and trade execution payments to be “bundled” and will exist alongside those already available, such as payment from an asset manager’s own resources or from a dedicated account.
The new plans are also compatible with rules governing research payments in some other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.
Comments on the FCA’s proposals should be sent to the regulator by 5 June 2024.
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 made by investors.
“We propose to provide more choice about how to pay for such research, helping to stimulate competition and making it easier to buy research across borders.”
The FCA said it has engaged extensively with sell-side and buy-side firms, as well as research providers and end-investor representatives, reviewed written analyzes and conducted a detailed survey of buy-side firms to gather quantitative evidence before announcing proposals.
The regulator added that it aims to produce final rules in the first half of 2024 after carefully considering the feedback it receives, but the timing will be determined by the quantity, strength and scope of the information gathered in the consultation.
FCA consultation paper Payment option for investment research you can see here (pdf).