The UK’s investment landscape is undergoing significant reform, as the Financial Conduct Authority (FCA) introduces a more flexible regime for the funding of investment research. With the publication of Policy Statement PS25/4: Investment Research Payment Optionality for Fund Managers, the FCA sets out a competitive framework designed to empower fund managers and strengthen the UK’s global position in financial services.
This marks a shift away from the rigid requirements of the retained MiFID II regime, which previously mandated a strict separation of research and execution payments. The new approach, which came into force on 9th May 2025, directly responds to long-standing industry concerns, particularly from smaller fund managers, regarding limited access to research and its impact on investment decisions.
Why Reform Was Necessary
Under MiFID II as retained in UK law post-Brexit, fund managers were required to unbundle research payments from execution costs. While intended to enhance transparency, this approach had several unintended consequences:
- Diminished access to high-quality research for smaller firms with limited budgets.
- A contraction in diversity among research providers, with niche firms struggling to sustain their business models.
- A perception that UK capital markets were becoming less competitive relative to international peers, especially the US where more flexible payment structures are permitted.
The FCA’s UK Investment Research Review (2023) highlighted these issues and called for a more balanced model that maintains transparency while enabling innovation and market competitiveness.
The FCA’s Solution: Payment Optionality for Investment Research
The FCA’s policy introduces payment optionality, allowing fund managers to select from the following funding methods:
- Pay from the firm’s own resources: This continues to be permissible, where the firm absorbs the cost of research without charging clients.
- Use a Research Payment Account (RPA): This is funded by a specific charge to the client’s fund or portfolio, subject to full transparency, robust governance, and prior client agreement.
- Use a Combined (Hybrid) Approach: This newly introduced option allows fund managers to split the cost of research between their own resources and a client-funded RPA, provided they maintain transparency and secure client agreement. This hybrid model offers greater flexibility for firms to design a research funding strategy that suits both their business needs and client expectations.
Key Features and Guardrails of PS25/4
Strong Guardrails on Client Transparency and Consent: Firms must secure clear, prior client agreement before using RPAs or hybrid models. They are required to provide full and ongoing transparency on how research payments are funded, including detailed disclosures on charges and the benefits delivered, in line with COBS 2.3A and 2.3B.
Robust Governance and Oversight Frameworks: To safeguard client interests, firms must implement rigorous governance arrangements. These include clear policies, controls, and documented processes to oversee research budgets, ensure research delivers value and manage any conflicts of interest effectively.
Proportional Application for Different Firms: The FCA expects firms to apply these guardrails proportionately, considering their size and complexity. This flexibility ensures that both large and smaller firms maintain high standards of client protection and transparency without unnecessary burden.
Encouragement of Market Innovation: The new approach also promotes access to a diverse range of research providers, including specialist and boutique firms, fostering innovation and better investment insights.
Alignment with Global Best Practices: The reforms bring the UK’s approach closer to international standards, particularly those in the US, enhancing competitiveness and reinforcing confidence among global investors.
In summary, PS25/4’s guardrails are fundamental to ensuring that the new payment optionality framework benefits clients, promotes transparency, manages risks and supports a trusted investment research market.
Next Steps for Fund Managers
Fund managers should proactively assess their current research payment arrangements and consider the potential benefits of adopting the FCA’s flexible regime:
- Review Your Research Payment Model: Evaluate whether your existing practices align with the new payment optionality framework and assess the suitability of adopting a hybrid model.
- Update Client Disclosures: Ensure all disclosures regarding research payments are clear, comprehensive and accurately reflect any changes under the revised rules.
- Strengthen Governance and Oversight: If implementing a hybrid model, establish robust controls to oversee budget management and demonstrate value for money in research services.
- Reassess Research Providers: Take advantage of the new framework to engage with a broader range of research providers, including niche and specialist firms offering differentiated insights.
How can Complyport Help
- Regulatory Gap Analysis: We assess your current research payment arrangements and identify areas requiring alignment with PS25/4 and the FCA Handbook.
- Policy and Disclosure Updates: Our team drafts or reviews your internal policies, client disclosures and governance documentation to ensure regulatory accuracy and clarity.
- RPA Implementation Support: We help design and operationalise compliant hybrid frameworks, including budget oversight processes and conflict of interest controls.
- Governance and Oversight Frameworks: We establish or enhance oversight mechanisms, ensuring your research procurement and monitoring meets FCA expectations and delivers demonstrable client value.
- Training for Compliance: Tailored training sessions to ensure all relevant stakeholders understand the new rules and their responsibilities under the new regime.
- Ongoing Regulatory Monitoring: We provide ongoing updates and alerts on FCA developments, ensuring your processes stay current and compliant.
Book a Meeting with a Complyport SME
To understand how the FCA’s new investment research rules impact your firm, book a meeting with a Complyport Subject Matter Expert today.
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