UK financial regulator The FCA has put forward plans for a new way to pay for investment research.
Analysis by the FCA shows that asset managers are largely getting the research they need under the current rules. However, the current options available to UK asset managers can be operationally complex and may, in some instances, favour larger asset managers. The current rules can also restrict UK asset managers’ ability to buy investment research produced outside the UK.
As part of the government’s Edinburgh reforms, an independent report on investment research suggested ways to improve UK markets. Now, the FCA has proposed giving asset managers greater freedom in how they pay for research, supporting their investment decisions. The regulator said that this greater choice should suit firms of varying business models and sizes, helping to promote competition.
The new rules 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.
The new plans are also compatible with rules governing research payments in certain 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 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 FCA said it has engaged extensively with sell-side and buy-side firms, as well as research providers and representatives of end investors, reviewed written analysis, and has conducted a detailed survey of buy-side firms to collect quantitative evidence before announcing its 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 timetable will be determined by the amount, strength and breadth of the information gathered in the consultation.
The FCA’s consultation paper Payment Optionality for Investment Research can be seen here (pdf).
