Analysis: New UK FCA Policy on Paying for Investment Research

Norton Rose Fulbright lawyers reviewed a recent UK Financial Conduct Authority's ("FCA") policy statement that makes a change in how UK asset managers can pay for investment research.

In an episode of the "Global Regulation Tomorrow Plus" podcast, London based financial services regulatory lawyers Jonathan Herbst and Hannah Meakin described a recent FCA policy statement, which provides firms with a new option to make joint payments for third-party research and execution services. The lawyers asserted that the move effectively revives the bundled payment structures prohibited by MiFID II. They explained that under existing UK rules, stemming from MiFID II, asset managers were required to pay for research separately from execution services, typically paying for research out of their own resources or via research payment accounts. They said that the new policy reintroduces a form of bundling.

Mr. Herbst emphasized the complexity of the new rules, particularly the requirement for firms to develop a coherent methodology for calculating and identifying research costs separately from execution costs. Additionally, he said, firms must implement operational procedures to manage these payments and conduct periodic assessments to ensure the value and quality of the research they purchase.

Ms. Meakin questioned whether the new rules would achieve the FCA's goal of enhancing market liquidity, particularly for small and mid-cap companies in the UK. 

The new rules went into effect on August 1, 2024. The lawyers emphasized the need for firms to quickly adapt their internal procedures and ensure compliance with the new requirements.