The second Markets in Financial Instruments Directive (MiFID II) research unbundling rules are working well for investors, according to the Financial Conduct Authority (FCA).
After conducting research, the FCA has indicated since the introduction of the MiFID II reforms for unbundling, budgets set by firms to spend on research have fallen on average by 20 percent to 30 percent.
The association said the fall in spending for research shows unbundling rules have improved asset managers’ accountability over costs, “saving millions for investors”.
A key principle of the MiFID II unbundling reforms is to ensure that portfolio managers act as good agents in the best interests of their clients and that their investment decisions are not unduly influenced by third parties.
From 3 January 2018, asset managers were required to pay for research separately from execution services, and either charge clients transparently or pay for research themselves.
Prior to MiFID II, research costs were often ‘bundled’ into opaque transaction fees borne by investors’ funds, with many firms not adequately controlling how much of their clients’ money was being used to pay for research.
The FCA’s review found that, following MiFID II, most asset managers have chosen to pay for research from their own revenues, instead of using their clients’ funds.
The review and analysis also found that despite budget reductions, most asset managers said they are still getting the research they need.
In addition, the FCA said 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.
The FCA said it will continue to monitor both competition impacts and research coverage of SMEs following the MiFID II reforms by analysing market data and other reviews.
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