The FCA is proposing to allow asset managers to rebundle payments for third-party research and trade execution.

By Rob Moulton, Nicola Higgs, and Charlotte Collins

On 10 April 2024, the FCA published its much-anticipated Consultation Paper on payment optionality for investment research (CP24/7). The Investment Research Review made a series of recommendations in the summer of 2023 to help boost the UK investment research market, which the government committed to taking forward (see this Latham blog post).

Fighting financial crime, protecting consumers’ needs, and bolstering wholesale markets are the regulator’s key priorities for the year ahead.

By Rob Moulton, Nicola Higgs, Becky Critchley, and Charlotte Collins

On 19 March 2024, the FCA published its Business Plan for 2024/25, setting out its priorities for the year ahead. While the Business Plan now takes on less significance than it did historically given other publications in circulation such as the FCA’s 3-year Strategy and the Regulatory

This annual publication explores some of the core focus areas for UK-regulated financial services firms in the year ahead. 2023 saw significant progress on the regulatory reform agenda, and many measures consulted on or reviewed as part of the Edinburgh Reforms will be finalised and/or implemented in the course of 2024.

We also saw the passing of the Financial Services and Markets Act 2023, many provisions of which have already come into effect and have made important changes to the

The Review recommends scrapping research unbundling, but also proposes a range of other changes to the UK research landscape.

By Rob Moulton, Chris Horton, Sean Wells, Charlotte Collins, and Johannes Poon

On 10 July 2023, HM Treasury published the final report produced by the independent UK Investment Research Review (Review). The Review was launched on 9 March 2023 to examine the link between levels of research and the UK’s attractiveness as a destination for companies to access capital (please see Latham’s previous blog post for the background to the Review).

The report makes seven recommendations which the government has committed to taking forward. While the recommendation to remove the research unbundling requirements was expected, the Review has taken a more holistic approach and the report puts forward wide-ranging suggestions for improving the UK investment research landscape. The recommendations are summarised below.

As the “most ambitious legislative proposal since the inception of EU financial regulation”, the changes would make significant amendments to MiFID II and PRIIPs.

By Rob Moulton, Nicola Higgs, Becky Critchley, Gary Whitehead, and Charlotte Collins

On 24 May 2023, the European Commission (Commission) published a package of proposals to strengthen protections for retail investors within the European Union (EU) and place “consumers’ interests at the centre of retail investing”. The proposals significantly amend the protections afforded to retail clients under MiFID II, and also impact the institutional markets, as discussed below.

The tone of the Call for Evidence indicates the controversial research unbundling rules could be primed for reform.

By Rob Moulton, Gary Whitehead, and Charlotte Collins

On 3 April 2023, HM Treasury published a Call for Evidence as the first step in the independent review of investment research and its contribution to the competitiveness of the UK’s capital markets.

The review has the stated key objectives of:

  • Assessing the link between levels of research and the attractiveness of the UK as a destination to list
  • Evaluating options to improve the UK market for investment research and to provide recommendations to this effect

The review was announced as part of the Edinburgh Reforms in December 2022. The Chancellor noted at the time that “the review is part of the government’s wider commitment to enhance the UK’s ability to attract companies to list and grow”.

Monitoring the progress of the Financial Services and Markets Bill and regulatory divergence between the UK and the EU will continue as a key theme in 2023. 

The Financial Services and Markets Bill leaves a significant amount of the essential regulatory detail to be developed later by HM Treasury (through regulations), followed by development of the specific rules by the regulators. Therefore, firms operating in the financial services sector will face legal and regulatory uncertainty as to the UK’s regime

The consultation proposes changes to rules on research and best execution reporting.

By Rob Moulton, Nicola Higgs, David Berman, and Charlotte Collins

On 28 April 2021, the FCA published a Consultation Paper (CP21/9) on proposed changes to UK MiFID relating to research unbundling and best execution — two areas covered by the EU “quick fix” changes to MiFID II last summer. However, the FCA’s proposals differ from the changes made in the EU, with the FCA noting that they reflect the different circumstances in the UK and the FCA’s own analysis as to how best to improve the regime.

The MiFID II research unbundling rules have always been very closely associated with the FCA, and so any change in this area may be seen as a significant concession by the FCA. The regulator is therefore at pains to stress that it is making only targeted amendments and that the regime overall is working well and achieving its aims. Further, it has proposed a much less generous threshold for its planned exemption for SME research than the EU equivalent, citing various data in support of its position. It also focuses its reasons for the change on wider capital markets reforms and future developments, rather than suggesting that the MiFID II rules have created an issue that requires fixing.

The FCA has recently announced that it will begin a review of how firms have implemented the unbundling rules “within weeks”.

By Beatrice Lo and Jonathan Ritson-Candler

At its recent asset management conference, the FCA announced that it will imminently launch a review of how asset managers have implemented the new MiFID II obligation to pay for the research they receive from sell-side firms separately from execution costs (the so-called “unbundling rules”). This is the first FCA-initiated MiFID II review, and comes only six months after the implementation of MiFID II. This is indicative of the regulator’s focus in this area.