(Bloomberg) — The UK’s financial regulator plans to allow asset managers to pay combined fees for research and trading, reversing a European Union rule that Britain had once championed.
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The Financial Conduct Authority said that while investors were largely getting the research they needed since the introduction of separate fees, the rules were “operationally complex” and favored large asset management firms.
“We are proposing to provide more options on how to pay for such research, helping boost competition and making it easier to buy research across borders,” said Sarah Pritchard, executive director of markets and international at the FCA, in a statement on Wednesday.
Since 2018, the Markets in Financial Instruments Directive or MiFID II has forced investment banks in the EU to charge separately for research and trade execution, with the aim of making costs more transparent and avoiding conflicts of interest.
However, this “unbundling” has led some providers to cut research services, leaving some smaller companies less monitored by independent analysts. European fund managers cut their 2018 investment research budgets by a fifth as they scaled back the number of providers they used.
EU member states have also sought a near total U-turn on unbundling. In the UK, the reform is part of a series of changes outlined by Chancellor Jeremy Hunt, who has said an overhaul of market rules would boost London’s competitiveness following Brexit.
“This new option is likely to be welcomed by asset managers, particularly those with an international footprint, some of whom have had to bifurcate their business and research relationships in order to comply with the rules,” said Leonard Ng, a partner at law firm Sidley.
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