UK Regulator Proposes Change to Investment Research Fees, Aims to Boost Markets

The UK market regulator has proposed a new policy allowing asset managers to pay for investment research alongside trading fees, reversing a longstanding practice to boost the country's capital markets. The proposal aims to ease restrictions imposed by Mifid II regulations, following concerns about reduced coverage of small and medium-sized stocks. This move is expected to provide more freedom for fund managers in paying for research and align the UK with EU and US rules on investment research payments.

Key Takeaways

• UK market regulator proposes allowing asset managers to bundle fees for investment research with trading costs, reversing Mifid II rules
• Changes aim to reinvigorate UK markets and increase research on small and medium-sized companies
• Proposal would give fund managers greater freedom in how they pay for research, aligning UK with EU and US rules
• Mifid II rules led to separation of fees charged by investment banks, putting pressure on smaller companies
• Independent brokers, especially those trading small-cap stocks, have been impacted by Mifid II, leading to research team reductions or mergers

News Content

The UK market regulator proposes to allow asset managers to bundle fees for investment research with trading costs, reversing a long-standing policy to boost capital markets. The move aims to energize UK markets and align with EU and US rules. However, concerns linger about the impact on smaller companies and the quality of research. This proposal seeks to address the challenges faced by smaller asset managers and encourage research on small UK companies.

The proposed change comes after the UK's departure from the EU, with efforts to reinvigorate UK markets and support smaller asset managers. The impact of Mifid II rules, implemented in 2018, led to a separation of fees for trading execution and research, raising concerns about the quality of broker research and the competitiveness of smaller brokers. The move is seen as part of a series of measures necessary to revitalize UK markets and address challenges faced by smaller asset managers.

Analysis

The UK regulator's proposal to allow asset managers to bundle fees for research and trading aims to energize markets and support smaller asset managers. This move, aligning with EU and US rules, may benefit larger firms but raises concerns about the impact on smaller companies and the quality of research. The proposal seeks to address challenges faced by smaller asset managers and revitalize UK markets post-Brexit. The direct cause is the impact of Mifid II rules, separating fees for trading and research, while the indirect cause is the need to boost competition and quality in market research. Short-term consequences may include improved access to research, while long-term impacts could see increased market competitiveness. This proposal could affect financial institutions, asset managers, and small UK companies.

Do You Know?

• Mifid II rules: Regulation that came into effect in the European Union in 2018, which required the separation of fees for trading execution and research, aiming to improve transparency and address conflicts of interest in the financial industry.

• Asset managers bundling fees for investment research with trading costs: A proposal by the UK market regulator to allow asset managers to combine fees for investment research and trading costs, reversing a previous policy. This move aims to align with EU and US rules and address concerns about the impact on smaller companies and the quality of research, particularly focusing on smaller UK companies.

• Revitalization of UK markets post Brexit: Efforts to reinvigorate UK markets and support smaller asset managers following the UK's departure from the EU, including the proposal to allow bundling of fees and other measures aimed at addressing the challenges faced by smaller asset managers.