The Financial Conduct Authority (FCA) has unveiled plans to introduce a new payment method for investment research, aiming to promote competition and facilitate easier access to research across borders. The proposed changes come as part of the government's Edinburgh reforms, following an independent report that suggested ways to enhance UK markets.
FCA Proposes Flexible Payment Options for Investment Research
Under the new proposal, asset managers would have greater flexibility in paying for research that supports investment decisions. The FCA's plan would allow the “bundling” of payments for third-party research and trade execution alongside current options, such as payment from an asset manager's resources or a dedicated account.
"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," Sarah Pritchard, the Executive Director of Markets and International at the FCA, commented. She emphasized the importance of high-quality, easily accessible investment research in maintaining a healthy and dynamic capital market.
The FCA's analysis indicates that while asset managers are generally obtaining the necessary research under the current rules, the available options can be operationally complex and may sometimes favor larger asset managers. Additionally, the current regulations can limit UK asset managers' ability to purchase investment research outside the UK.
This is another of the new regulatory ideas after the FCA announced three weeks ago its intention to combat memes and reels in promoting financial services and products. "Promotions are not just about likes but also about the law," Lucy Castledine, the Director of Consumer Investments at the FCA, commented.
The Final Rules by June 2024
The FCA's proposed payment options are designed to be compatible with regulations in other significant markets, making it more straightforward for asset managers to purchase research consistently across international borders.
Before announcing its proposals, the FCA conducted a thorough consultation process, engaging with various industry participants. This included discussions with firms on both the sell-side and buy-side of the market, as well as research providers and representatives of end investors. Additionally, the regulator conducted a comprehensive survey of buy-side firms to obtain quantitative data that informed its decision-making process.
Looking ahead, the FCA intends to implement the final rules by the end of the second quarter of 2024. However, the exact timeline will depend on the nature and extent of the feedback received during the consultation period. The regulator will carefully analyze stakeholders' comments and suggestions to ensure that the final rules are well-informed and effective.
