FCA Consultation Paper: Investment research payment optionality for fund managers (CP 24/21)

The FCA has published a consultation paper (CP24/21) on payment optionality for research. This follows a July 2024 Policy Statement (PS24/9) permitting MiFID investment firms wishing to buy research in respect of their segregated mandates to use joint payments for third-party research and execution services, provided they met certain requirements (see our briefing here). This sits alongside existing options allowing payment from asset managers' own resources and payment from a research payment account. Changes to the regime follow the UK Investment Research Review, which set out recommendations to improve the investment research market (see our briefing here). Payment optionality for asset managers in respect of investment research is also being introduced in the EU (see our briefing here).

Following feedback on its regime, the FCA is now considering extending the payment option to other asset managers, including managers of pooled vehicles under AIFMD and UCITS. This will involve changes to the COBS 18 Annex 1 rules, and other related rules.

In-scope fund managers adopting the joint payment option will be subject to certain guardrails including:

• a written policy on the approach of joint payments;
• setting up a research budget based on the expected amount of third-party research;
• a cost allocation structure among research providers;
• assessment of the price and value of research periodically;
• fair allocation of the cost of research for the funds managed;
• being responsible for the operation and administration of research payment accounts; and
• appropriate disclosure of joint payments to investors.

Consumer Duty

The FCA states that the price and value outcome under the Consumer Duty is relevant for fund managers in relation to the price of investment research passed onto unitholders when taking up the joint payment option. The customer understanding outcome under the Consumer Duty would include appropriate disclosure and client communications explaining the impact of joint payments on unitholders.

Next steps

The deadline for comments is 16 December 2024. The FCA will review feedback and expects to publish a policy statement in the first half of 2025.