On May 9, 2025, the UK Financial Conduct Authority (FCA) published its policy statement PS25/4, finalizing new rules that grant pooled investment funds greater flexibility in paying for investment research.
These rules, stemming from the FCA’s Investment Research Review (IRR) and feedback to prior consultations, mark a significant step in enhancing the competitiveness and efficiency of the UK’s asset management sector. This article explores the details of PS25/4, its implications for asset managers, and how it reshapes the landscape of investment research funding.
Background and Context
The FCA’s journey toward these reforms began with the IRR in July 2023, which identified barriers in the investment research market that hindered effective competition and investor outcomes. The IRR recommended increasing payment optionality to make it easier for asset managers to access high-quality research. In response, the FCA introduced rules in July 2024 (PS24/9) allowing MiFID investment firms managing segregated mandates to use joint payments for third-party research and execution services, provided they met specific guardrails. These guardrails included transparent budgeting, cost allocation, and consumer protection measures to ensure fair pricing and prevent conflicts of interest.
However, industry feedback highlighted that these rules primarily benefited institutional investors and did not fully address the needs of asset managers overseeing pooled investment vehicles, such as those under the UK Alternative Investment Fund Managers Directive (AIFMD) or Undertakings for Collective Investment in Transferable Securities (UCITS) regimes. The FCA’s consultation paper CP24/21, published in November 2024, proposed extending this payment flexibility to pooled funds, culminating in the final rules outlined in PS25/4.
Key Provisions of PS25/4
PS25/4 extends the joint payment option introduced in PS24/9 to a broader range of asset managers, including:
- UCITS Management Companies: Firms managing collective investment schemes under the UCITS framework.
- Full-Scope UK AIFMs: Alternative investment fund managers overseeing pooled vehicles.
- Small Authorized UK AIFMs and Residual Collective Investment Scheme Operators: Smaller firms managing alternative investment funds or other collective schemes.
- Investment Platform Providers and Authorized Fund Managers: Entities facilitating or managing pooled investment products.
Under the new rules, these managers can now combine payments for investment research with trade execution services, either via Commission Sharing Agreements (CSA’s) or through traditional “Bundled Commissions” subject to strict conditions. These conditions include:
- Transparent Budgeting: Firms must establish clear budgets for research costs, ensuring they are distinct from execution costs.
- Cost Allocation: Research costs must be fairly allocated across clients to prevent cross-subsidization.
- Disclosure and Consent: Managers must disclose their payment policies to investors and obtain consent where required, enhancing transparency.
- Periodic Review: Firms must regularly assess the quality and value of research purchased to ensure it benefits investors.
This flexibility complements existing payment options, such as direct payments from the firm’s own resources or client-funded research payment accounts (RPAs), giving asset managers a wider array of tools to procure research.
Implications for Asset Managers
The introduction of PS25/4 has several far-reaching implications for asset managers, including the following:
1. Operational Efficiency
By allowing CSA or bundled payments, the rules reduce the administrative burden of separating research and execution costs. This is particularly beneficial for smaller firms or those managing pooled funds with diverse investor bases, as it simplifies compliance with payment regulations. Managers can now align their payment structures with their business models, potentially lowering operational costs.
2. Enhanced Access to Research
The ability to bundle payments or use CSAs makes it easier for asset managers to procure high-quality research from global providers, including those outside the UK. This is critical for maintaining competitive investment strategies, as research informs portfolio decisions and risk management. The FCA’s rules aim to level the playing field, ensuring that managers of pooled funds can access the same insights as those managing segregated mandates.
3. Competitiveness of UK Markets
PS25/4 supports the FCA’s broader objective of strengthening the UK’s position as a global leader in asset management. By removing barriers to research procurement, the rules enhance the attractiveness of the UK as a hub for fund management, potentially drawing more firms and capital to its markets. Jon Relleen, FCA Director of Supervision, Policy, and Competition, emphasized that these changes “support economic growth by putting more information in the hands of investors and giving investment firms greater access to research.”
4. Consumer Protection
While the rules grant greater flexibility, the FCA’s guardrails ensure that investor interests remain paramount. Transparent budgeting and cost allocation prevent hidden charges, while disclosure requirements empower investors to understand how their funds are used. This balance between flexibility and oversight aligns with the FCA’s commitment to consumer protection.
Challenges and Considerations
Despite the benefits of the new rules, asset managers must navigate several challenges to adopt the new payment option. Implementing robust systems for budgeting, cost allocation, and disclosure requires investment in compliance infrastructure. Firms must also ensure that their research procurement processes align with the FCA’s expectations for quality and value, which may involve regular audits and documentation.
Additionally, managers should consider the timing of adopting joint payments. The FCA has indicated that the implementation timeline will be confirmed in 2025, potentially aligning with prospectus updates for funds. Firms must weigh the operational and strategic implications of transitioning to bundled payments, particularly in terms of investor communication and regulatory reporting.
Our Take
The FCA’s newly announced PS25/4 rules represents a pivotal reform in the UK’s investment research market, extending payment flexibility to pooled investment funds and empowering asset managers to access critical insights more efficiently.
By building on the IRR’s recommendations and industry feedback, the new rules promote increased competition, enhanced consumer protection, and they bolster the UK’s competitiveness in global asset management. For asset managers, PS25/4 offers an opportunity to streamline operations and strengthen investment strategies, provided they navigate the associated compliance requirements effectively. As the FCA continues to refine its regulatory framework, these changes signal a commitment to fostering a dynamic and investor-focused financial ecosystem.
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