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FCA reveals findings on MiFID II review

Jessica Nangle

September 19, 2019

The Financial Conduct Authority (FCA) has published findings from a multi-firm review indicating that the Markets in Financial Instruments Directive’s (MiFID II) instruction to price research separately from execution is working well for investors.

One of the key principles of the MiFID II to price research separately from execution services, known as ‘research unbundling’, was enforced in January 2018 and aims to ensure that portfolio managers act as good agents in the best interests of their clients.

Under MiFID II rules, firms must either charge clients transparently or pay for research themselves.

The FCA’s review found that since the introduction of the reforms, budgets set by firms to spend on research have fallen on average by 20-30%.

Ray Boulger, senior mortgage technical adviser at John Charcol, said: “It is not surprising that the FCA’s review found that once firms had to decide proactively how much to spend on research rather than the cost being hidden in commission or fees providers of that research have on average not been able to justify the previous level of spending.

“As firms now have to pay separately for research that can only drive up the quality of the reduced amount of research available.”

The review also revealed that research coverage of small and medium enterprises (SMEs) listed in the UK has not seen a ‘material reduction to date’, and ‘wide price ranges are being offered by brokers and independent providers’.

Boulger added: “It is also not surprising that there is a wide range of prices offered by brokers and independent providers.

“There is no doubt also a wide range of quality in the research available and companies who chose the cheapest without focussing on quality will be doing themselves no favours.

“Price doesn’t necessary indicate quality but when choosing providers of research the starting point should always be quality.”

The report outlines the FCA’s expectations as to how certain activities, such as trade association events, interact with the new rules.

The FCA has announced that intends to carry out further work in this area in 12 to 24 months’ time to assess firms’ ongoing compliance with their rules.


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