The UK financial regulatory authority, FCA, has proposed a new approach to paying for investment research.

FCA's analysis suggests that under current regulations, asset management firms generally have access to the research they need. However, the current options available to UK asset management firms may be operationally complex and may favor larger firms in some cases. Existing rules may also restrict UK asset management firms from purchasing investment research produced outside the UK.

As part of the government's Edinburgh reforms, an independent report on investment research has proposed methods to improve the UK market. Now, FCA suggests giving asset management firms greater freedom to choose how to pay for research to support their investment decisions. The regulatory body states that this increased choice should be suitable for companies of different business models and sizes and should help promote competition.

The new rules will allow for "bundled" payments for third-party research and trade execution and will coexist with existing rules, such as asset management firms using their own resources or dedicated accounts for payment. They will also be compatible with research payment rules in some other major jurisdictions, making it easier for asset management firms to purchase research across borders in the same manner.

Opinions on FCA's proposals are to be submitted to the regulatory authority by June 5, 2024.

Sarah Pritchard, Executive Director of Markets and International at FCA, said, "High-quality, readily accessible investment research is a crucial component of healthy, vibrant capital markets. It aids investors in decision-making. We propose providing more choices on how to pay for such research, which will help foster competition and make cross-border purchasing of research reports easier."

FCA stated that before announcing its proposals, it had engaged extensively with both sell-side and buy-side firms, as well as research providers and end-investor representatives, reviewing written analyses and conducting detailed surveys of buy-side firms to gather quantitative evidence.

The regulatory body added that its aim is to finalize the rules in the first half of 2024 after carefully considering the feedback received, but the timetable will depend on the quantity, strength, and breadth of information gathered during the consultation.