MiFID II, which comes into force on 3 January 2018, is intended to help improve the functioning of the European Union (EU) single market by achieving a greater consistency of regulatory standards and improving investor protection.

However, the FCA said in its policy statement that in some cases it is imposing additional requirements to help promote investor protection and market integrity, while avoiding distorting competition between different types of investment firms. For example, extra rules will be needed to maintain its existing Retail Distribution Review (RDR) adviser charging and platform rules.

MiFID II reforms would require investment research to be paid for in one of two ways: from a fund manager’s own account, recoverable by raising management fees, or via a client research payment account. Regulators have yet to clarify the rules around using dealing commissions to fund such an account. An unbundled model, where commission use is limited, would be most disruptive and could be applied by the industry globally. The proposals are part of the European Commission’s clampdown on third-party inducements, Bloomberg says.

Chris Turnbull, co-founder of ERIC (Electronic Research Interchange), comments:
“The FCA’s final MiFID II policy statement provides everything research providers and asset managers need to act on investment research. There can be no further excuse for delays. Asset managers who do not have agreements in place after the January implementation date may be cut off by research providers.

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“Confirmation that asset managers can make use of a trial period to evaluate research before committing will ensure there is no cliff-edge drop. The three month trials permissible are not long and, given that separate trials must be at least 12 months apart, do not give the buy-side much time to assess the quality of research they are receiving. Asset managers will need to prioritise certain research relationships and make efficient use of trials to decide on providers that will deliver the most value for their organisation’s requirements.

“Managing research provider relationships will be more labour intensive when the new unbundling rules come into effect. Research platforms can enable both providers and asset managers to efficiently manage their agreements in one consolidated view, with additional flexibility to tender for bespoke projects. But preparations need to be made now to design approaches to research distribution and procurement that benefit from the full range of opportunities unbundling presents.”


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