The FCA said equity fund investors saved £70m on research costs in H1 2018 compared to the same period in 2017 in a review of the research unbundling rules that came into force under the EU directive in January 2018.
Over five years it expects these savings to reach £1bn.
From January 2018, asset managers were required to pay for research separately from execution services and either pay for research themselves or charge clients transparently.
Buy-side research budgets fall
Research budgets have fallen by 20% to 30% on average, the FCA found, thanks to competition, a more formalised approach to budgets and buyside taking a more efficient approach to research.
The regulator said it would reassess pricing competition in 12 to 24 months’ time, noting the market was still going through a period of price discovery with a “wide range of sell-side research pricing levels”. These included tiered options or a pay-as-you-go approach.
Among potential areas of concern were large banks taking a ‘loss-leading’ approach to research and driving independent research providers out of the market, therefore reducing competition.
Aim market hasn’t suffered from research rules
The FCA said there had not be a material reduction in research coverage of small and mid-caps despite the smaller budgets and some anecdotal evidence to the contrary.
Trading volumes on the Aim market did not appear to be affected by Mifid II, the FCA said.
FCA responds to inducements confusion
Some firms had been concerned about providing analyst forecasts for consensus data used on the likes of Bloomberg.
But the FCA confirmed this was acceptable and did not break inducement rules, even if the analyst’s identity is disclosed.
The regulator confirmed free-trial periods up to three months and trade association events fell outside the inducements framework. Marketing material and events were also acceptable, as long as the latter did not involve “unduly lavish” hospitality.