Introduction
With the introduction of payment optionality in July 2024 for MiFID investment firms through PS24/9, the FCA is now consulting to expand this optionality further to asset managers who offer UK AIFMD or UK UCITS funds through CP24/21. The addition of increased optionality is intended to improve the investment research market, encouraging firms to engage more with research and the benefits such research can provide to customers.
What Does this Increased Optionality Look Like?
As with the amendments made in relation to MiFID Investment firms, CP24/21 is proposing amendment to COBS to allow firms to combine (also referred to as ‘bundling’) payments for third party research and execution services. Again, certain “guardrails” are required and this option would only be allowed if a Firm has established:
- a formal policy regarding the ‘bundled’ approached;
- a budget for the amount of third-party research is to be purchased;
- an approach to the allocation of cost across the client base;
- a structure for the allocation of payments across research providers; and
- operational procedures for administration of accounts to purchase research.
Furthermore, a Firm must:
- assess on an ongoing basis the value and price of research purchased; and
- disclose to clients the Firm’s approach to bundled payments, the most significant research providers and costs incurred.
These guardrails look to establish a clear audit trail for firms when potentially utilising the new option but also ensure that transparency is maintained. This new ‘bundled’ option, if implemented, would be a third option sitting alongside the existing approaches, namely the payment for research being funded by the Firm itself directly or via a Research Payment Account.
Moving Forward
These new proposed rules are still in the consultation phase and therefore firms have until 16th December 2024 to respond to the expansion of research payment optionality for UK AIFMD and UK UCITS firms. Firms can respond to the consultation through completion of the online response form, which will form the basis of any progression or amendments to the rule application moving forward.
Once consultation closes it is expected that the FCA will take some time to consider the response from the sector and make any amendments required. This likely will be followed with a Policy Statement in due course outlining final rules and implementation timeline as required.
How can Complyport help?
Complyport can support your firm in understanding and following these changes by providing:
- Regulatory Guidance: helping your firm understand the FCA’s expectations and providing expert advice on the relevant regulatory requirements;
- Documentation updates: assistance in drafting appropriate policies and procedural documents;
- Ongoing Support: providing ongoing support to ensure that your firm remains compliant as regulations evolve;
- Training: providing training sessions to educate staff on the practical requirements and best practices for compliance.
By utilising Complyport’s experience and expertise, firms can navigate the complex regulatory environment seamlessly and maintain high levels of compliance with the FCA’s rules and expectations.
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