Another View On the FCA’s Research Unbundling Policies


The following is a guest article from Amrish Ganatra, Managing Director of Commcise Software Limited, a London-based provider of commission management software.  Full analysis of the FCA’s final research unbundling policies was provided to ResearchWatch subscribers here.

Last week, the FCA released its second and final Policy Statement on MiFID II implementation.   Chapter 7 of the document, which relates specifically to research, has thrown up some important points that we believe should be highlighted.

Ex-ante methodology

In its response on valuation and pricing of research, the FCA states that firms need to formulate ‘a clear methodology to establish what they expect to pay providers for research before they receive and consume services’. [My italics].

This is different to what firms have typically done in the past with a broker vote (which is commonly managed as an ex-post process). The FCA are aligned with ESMA’s guidance which suggests that asset managers may vary any [ex-post] payments made to research providers, based on actual services received, but any such variation must be ‘in a proportionate and predictable manner based on their [ex ante] criteria.’ This further highlights the need for firms to clearly lay out their budget and valuation methodology.

Fair allocation

The Policy Statement stresses in various places that firms need to put in place appropriate controls and management oversight. In the FCA’s response on RPA funding and payment mechanisms, they have clarified that where a firm uses a combination of RPA methods (e.g. transaction-based and P&L), the firm needs to set out in its research policy how it intends to allocate costs fairly across clients and portfolios.

This is an important point because it means that any asset manager that uses more than one funding method has to evidence that there is a clear and fair allocation across all clients, and they have to take “all reasonable steps” to prevent any conflicts.

Mixed services

Firms will need to ensure they have the necessary controls in place to ensure that the only thing they pay for from an RPA is research, and not any other service. This is made clear in the Policy Statement response on payments for RPA administration and mixed-use services.

The FCA clarifies that anything that cannot clearly be evidenced as research, or where there might be ambiguity around the mixed nature of a given service, the asset manager should consider paying for such services out of their own resources and not from an RPA.

Virtual RPAs

Responding to the operational aspects of Research Payment Accounts (RPAs), the FCA has indicated that firms can hold research balances with more than one firm provided that each individual RPA is still adequately protected in line with COBS 2.3B.19G. Asset Managers would then virtually account for research at desk/strategy or fund level.

Why is this important?  Because it means that firms can continue to hold money with their executing broker and maintain a separate RPA for funds that are within the scope of MiFID. This is particularly relevant to US or other non-EU domiciled firms, as it may ease the challenges currently faced in paying US brokers from an RPA.

Payment for RPA Administration

Where an asset manager chooses to employ a third-party firm to manage their Research Payment Account, the asset manager must pay the RPA Administrator for this service.



About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email:

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