The Mifid II unbundling rules on how research is funded have benefited investors, according to a review by the Financial Conduct Authority (FCA).
The watchdog said the regulation has improved asset managers’ transparency and accountability over costs.
This is because asset management companies have been required to pay for research separately from execution services, by either charging clients directly or paying for it themselves.
The FCA’s review of 40 firms between the second half of 2018 and early 2019 found that the chnage has resulted in investors in UK-managed portfolios saving around £70m ($87.2m, €78.7m) in the first six months of 2018.
But Tim Cant, financial regulation partner at law firm Ashurst, says not everyone will agree with the UK financial watchdog.
“The FCA study will be controversial amongst continental regulators, who hold different views,” he said.
Positive outcomes
The regulator’s analysis found that:
- since the introduction of the reforms, budgets set by firms to spend on research have fallen on average by 20-30%,
- despite these budget reductions, most asset managers said they are still getting the research they need,
- research coverage of small and medium enterprises (SMEs) listed in the UK has not seen a material reduction to date, and;
- research pricing is still evolving, with wide price ranges being offered by brokers and independent providers.
But if firms outsource research to third party providers, they must ensure they are compliant, as relying on the external firm’s responsibility could be in breach of the outsourcing requirements.
Further reviews in the area will be carried out in the next 12 to 24 months to assess firms’ compliance with Mifid II, the regulator said.
The FCA expects savings from these reforms to grow to up to £1bn over five years.
