FCA consults on new way to pay for research

The FCA is consulting on a range of ways in which asset managers might choose to pay for investment research. It says that, while firms are generally getting the research they want under the current rule format, the requirements can be complex and may favour larger firms, and can also restrict ability to buy non-UK research. The government’s Independent Research Review concluded in 2023 that the restrictions MiFID 2 had put in place that meant that research and execution charges had to be unbundled had had adverse impacts on the provision of investment research.

The FCA now proposes to give asset managers more choice in how they pay by allowing bundling of payments for third-party research and trade execution as an alternative for the methods the rules already allow. Its proposals align to some extent with EU moves to adjust the MiFID 2 requirements.

The FCA is aware of the risk that the change could end up reintroducing the opaque charging structures that the MiFID 2 requirement was put in place to stop. It will keep an eye on this, and give guidance if it thinks firms are not using the new flexibilities properly. It also notes that it expects firms to be able to evidence customer outcomes properly where the Consumer Duty applies.

The changes would amend COBS 2.3A and would add significant new content to COBS 2.3B.

Consultation closes on 5 June.