The FCA has put forward plans to allow the “bundling” of payments for third-party investment research and trade executions, following concerns that the current system favours larger asset managers and restricts UK firms from buying research from overseas.
This comes following the UK Government’s Edinburgh reforms first announced by HM Treasury in December 2022, which included the request of an independent review into the investment research market.
The Investment Research Review (IRR) was subsequently published in July last year, and laid out a series of recommendations to improve the market. Specifically, the FCA has responded to recommendation two in the IRR, which is to create an option for using bundled payment for trade execution and research.
This proposed option would exist alongside current payment methods such as from an asset manager’s own resources or from a dedicated amount. The regulator said this moves the UK more in-line with rules on investment research payments across other regions, also making it easier for asset managers to buy research from outside the UK.
See also: FCA increases spending and aims to bolster UK stockmarket in 2024/25 business plans
In a bid to give asset managers more freedom in terms of how they pay for research, the FCA hopes proposed changes will “suit firms of varying business models and sizes, helping to promote competition”. It added that the proposed solution was put forward as a result of engaging with sell-side and buy-side firms, research providers and representatives of end investors, conducting surveys of buyside firms and reviewing written analysis.
The final rules will be published in the first half of 2024 following feedback, although timings could vary based on the “amount, strength and breadth of the information gathered” during the consultation period. Comments on the proposals should be sent to the FCA 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.”
