The Financial Conduct Authority is concerned about inconsistencies in the interpretation and application of the MiFID II regulations, which came into force in January. MiFID II requires asset managers to separate the cost of research from transaction charges and trading commissions, a process known as unbundling. The move was intended to improve investor protection by ensuring that asset managers’ decisions could not be influenced by receiving research free. The FCA announced the review at its asset management conference last week. It said it would start to contact fund managers, investment banks and brokers within weeks. The system that existed previously, in which trading orders could be directed to the bank or broker supplying the information, was opaque. Now, however, at least one aspect of the change brought about by MiFID II is in question.
The FCA wants to evaluate the effect of the rules on the use of research. Within weeks it will write to asset managers, investment banks, specialist brokers and independent providers to ask for details about research pricing models. It also plans to ask about governance and decision making related to research provision and to examine any outlier models of pricing methodologies. The Mifid rules also require banks and brokers to charge fund managers separately for “corporate access” such as face-to-face meetings with company management. The pricing of corporate access will be part of the FCA review, which is expected to take six months to complete.
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