In addition, the regulator is proposing certain changes to small and medium-sized enterprise research, while retaining some of the changes that PS21/20 introduced, including treating corporate access in relation to companies with a market capitalisation below £200mn as a minor non-monetary benefit.
While the FCA defends its previous stance on unbundling in CP24/7, there does appear to be some softening of this previous policy decision. It also recognises the limited take-up of the research payment account option, so it is yet to be seen if companies would take on something just as, if not more so, operationally complex.
The changes being proposed are not yet relevant to Ucits management companies, full-scope UK alternative investment fund managers, small-authorised UK AIFMs and residual collective investment scheme operators.
But the regulator’s policy intention is to extend its proposals to all buyside companies, and they are expected to familiarise themselves with the proposals. It plans to achieve alignment in a future consultation later this year.
More prescriptive standards
Also, just to flag the warning the FCA gives in CP24/7 that further guidance and more prescriptive standards could be introduced if the new option reintroduces opaque charging structures or conflicts of interest that were prevalent before Mifid II. Given the potentially limited take-up by companies of the new option, the likelihood of this happening may be minimal but the warning to firms is already there.
The regulator claims this proposal will allow compatibility with rules governing research payments in other major jurisdictions, including the US, and hence it should make it easier for UK companies to access research from cross-border providers. It will also allow UK investment research providers to compete effectively on a global basis.
Of course, how this proposal will fit with the EU’s legislative reforms to the Mifid II unbundling rules is yet to be seen. But the the FCA has already flagged in its consultation that while the EU’s proposals share some similarities there are differences as regards the guardrails, including the UK regulator requiring budgets for research spending, an approach to the allocation of costs across clients, and a structure for the allocation of payments across research providers.
The FCA is asking for comments by June 5. This is an eight-week consultation period and, dependent on the responses, a quick turnaround is expected, with the regulator aiming to publish any new rules or guidance in a policy statement in the first half of 2024.
Jonathan Herbst is global head of financial services and Uzmah Yunis is counsel at Norton Rose Fulbright
