The changes to investment research (and to a lesser extent) corporate access were the focus of much commentary and speculation in the lead up to, and following, the implementation of MiFID II in January. We consider these topics in our previous blogs on investment research and corporate access. Very soon after implementation it became apparent that the price of investment research was cratering, due in a large part by the extremely low prices offered by the larger institutions. On first blush this might seem positive, a vindication of the FCA’s longstanding crusade for transparency and the unbundling of execution costs from research charges. However, there have been concerns that the pricing packages offered by some firms are so low that they may in fact constitute an inducement. What’s more the fall in research charges is threatening the business model of specialist research firms, which may be unable to profitably compete on price with the bigger firms.
Given the impact of the MiFID II rules on investment research and corporate access, and the uncertainty in the market, it was inevitable that the FCA would launch a review of the market, and so it has proved. At their recent Asset Management Conference on 12 June, the FCA announced that it would review the investment research and corporate access rules and market, and that it would start to contact fund managers, investment banks and brokers in the coming weeks. The FT article (subscription may be needed) announcing the review also had comment from Mhairi Jackson, a manager in the FCA’s wholesale conduct policy team, who said that investment banks could not offer “unduly favourable terms” for research and that “Any all-you-can-eat research offerings are potentially more prone to fall short of the spirit of the MiFID rules”.
It is still too early to know what the outcome of the review will be or, indeed, how the review will unfold and over what timetable. However, it is helpful that the FCA has recognised that uncertainty remains in the realm of investment research and corporate access, despite or in spite of the MiFID II changes, and the unintended consequences caused by these changes.
Bryan Cave Leighton Paisner’s Financial Regulation team have been advising clients on the implementation of MiFID II, including the new rules in relation to investment research and corporate access. If you would like to discuss the FCA’s review or this topic more generally, please do not hesitate to contact Joseph Ninan or Samantha Paul.