UK Investment Research Review Signifies Further EU-UK Divergence on Unbundling Research Rules

The report and recommendations of the UK Investment Research Review were published on July 10, 2023. The recommendations have been accepted by the government and the Financial Conduct Authority has committed to prioritizing consulting on proposed rule changes with a view to revised rules applying in H1 2024.

There are seven key recommendations:

• Allow additional optionality for paying for investment research and continue to obtain research from other jurisdictions, in particular the U.S.. This would entail allowing U.K. asset managers to pay for research out of their own resources or on a bundled basis or by making a specific charge to their clients. There are recommendations to strengthen the client protection arrangements that buy-side firms have in place.
• Allow greater access to investment research for retail investors.
• Introduce a Research Platform to help generate research, particularly for smaller companies.
• Involve academic institutions in supporting investment research initiatives, and support increased collaboration between academic institutions and capital markets participants.
• Support issuer-sponsored research by implementing a code of conduct to promote the production and use of excellent sponsored research.
• Clarify aspects of the U.K. regulatory regime for investment research for both providers and users of research and consider introducing a bespoke regime.
• Review the rules relating to investment research in the context of IPOs with the aim of removing the obstacles, including in FCA rules, affecting the U.K.'s competitiveness.

In our client note "MiFID II and the US Investment Adviser Regime", we discuss the impact of the EU and U.K. rules on unbundling of research on U.S. broker-dealers, particularly in light of the end on July 3, 2023 of the temporary relief given by the Staff of the Securities Exchange Commission that allowed U.S. brokers to provide execution and research services on a MiFID II-compliant basis without being regulated as an investment adviser. A more flexible U.K. approach to the unbundling research requirements would alleviate these constraints.

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