The City watchdog has proposed new payment options for investment research to help boost competition, retreating from the 'unbundling' regime it had formerly championed as part of the EU’s Markets In Financial Instruments Directive (MiFID II).
Fund managers are to be given greater freedom in how they pay for research, the Financial Conduct Authority said, which aims to publish final rules before the end of June.
New rules will again allow the ‘bundling’ of payments for third-party research and trade execution.
Investment banks, institutions and research firms have been consulted by the FCA, which said the feedback from a detailed survey will be examined before the final results are decided.
Several recommendations made in the Investment Research Review by lawyer Rachel Kent were accepted by the government last year, Chancellor Jeremy Hunt confirmed in his Mansion House speech, having proposed the review in his 2022 Edinburgh reforms.
Hunt, along with the government and the City, all supported the review as part of a wider commitment to enhance the UK’s ability to attract companies to a London listing.
The current options available to UK asset managers "can be operationally complex and may, in some instances, favour larger asset managers", the FCA said in today's statement.
It made no mention of measures to improve access for retail investors.
Sarah Pritchard, the FCA's executive director for markets and international said: “High quality, easily accessible investment research is a vital part of a healthy, dynamic capital market. It supports the decisions investors make."
She said the proposals provided more options on how to pay for such research, helping boost competition, as well as making it easier for UK firms to buy research across borders.
The FCA consultation on the proposals will accept comments until 5 June.
Undoing the principle of bundling payment for research services with execution charges reverses one of the key parts of the MiFID II regulations for which the UK pushed hard pre-Brexit.
As one commentator put it when the Kent proposals for were accepted, this is "a somewhat humiliating outcome for the FCA after investing so much political capital in this aspect of MiFID II".
Martin Lovick, director of capital markets at Cosegic, said "the quantity (and maybe quality) of research may improve but is still likely to be focused on larger companies" and that Kent's call for the FCA to consider amending the regime to allow retail investors to access investment research more easily was "a laudable aim but not supported by any substantive proposals to improve retail access" other than via a new research platform that had been proposed.