UK Proposes Unwinding MiFID II Unbundling Requirements


Last Monday evening the UK’s Chancellor of the Exchequer delivered his first Mansion House speech.  In this speech, Hunt said that he accepted all the recommendations made in Rachel Kent’s UK Investment Research Review (also published that afternoon).  The following article reviews these recommendations, and what it means for the investment research industry.

Key Recommendations

On December 9th, 2022, the Chancellor announced that he would launch an independent review of financial services investment research and its contribution to UK capital markets competitiveness. On March 9th, 2023 the Economic Secretary to the Treasury announced that Rachel Kent, a partner at Hogan Lovells, was appointed to oversee this study.  Ms. Kent published the results of her review on July 10, 2023, making a series of recommendations to the government, Financial Conduct Authority (FCA) and industry.  The key recommendations in the UK Investment Research Review include:

Recommendation 1: Introduce a Research Platform to help generate research – A third-party “Research Platform” should be created which will provide a central facility for the promotion, sourcing and dissemination of investment research on publicly traded companies.  While research on all companies would be included, research on smaller cap companies should be the focus of this platform.  Details of this research utility were not provided, nor were specifics of how the research would be paid for (though several options were mentioned).

Recommendation 2: Allow additional optionality for paying for investment research – The recommendation most focused on addressing MiFID II concerns was to provide additional flexibility so that buy-side firms have the option of being able to pay for research in a number of ways.  This includes payment from their own resources (P&L); through a specific research charge to their clients; or by combining the cost of research with execution charges (rebundling).  A few of the other key proposals related to Recommendation 2 include:

Increase transparency between asset managers and their customers around research payments; allocate research costs fairly between clients; require that asset managers have a formal structure to allocate payments between different research providers (CSAs); mandate that asset managers periodically undertake benchmarking or price discovery in relation to the research firms it uses; and, require that asset managers make appropriate disclosures to their customers around their research payments.

The buy-side is not required to obtain consent from their underlying clients about how they intend to pay for the research they use.  Instead, these consents would be subject to any pre-existing contractual arrangements between the parties or existing (non-research-related) regulatory obligations that require consent.

Lastly, the UK should seek to adopt research rules that are aligned with other key jurisdictions (the EU and US) in order to avoid being at a competitive disadvantage.  Similarly, the UK should remove any barriers that prevent UK asset managers from paying for investment research produced in other jurisdictions where payment on a bundled basis is standard practice in those jurisdictions.

Recommendation 3: Allow greater access to investment research for retail investors – The FCA should consider whether rules could be amended or guidance offered to allow retail investors to access investment research more easily.

Recommendation 4: Involvement of academic institutions and bursaries in the provision of investment research – As part of establishing the Research Platform discussed in Recommendation 1 above, the operator of the Research Platform should explore ways to foster collaboration between academic institutions and the capital markets industry.  This could include (i) the provision or support of research; (ii) providing training for analysts; and (iii) encouraging academic institutions to assist innovative enterprises that seek to develop out of academic study.

Recommendation 5: Support issuer-sponsored research by implementing a code of conduct – The industry should collaborate to support the creation and adoption of a voluntary code of conduct for issuer-sponsored research, to add structure to the issuer-sponsored research market, and to enhance the integrity of issuer-sponsored research as a potential useful source of information in its own right.

Recommendation 6: Clarify aspects of the UK regulatory regime for investment research and consider introducing a bespoke regime – The regulatory regime for investment research should be reviewed and steps taken to identify any areas that are unclear, unnecessarily complex or difficult to justify. Where appropriate, the regime should be simplified and/or clarified.  This may include considering the creation a bespoke regulatory regime specifically for investment research.

Recommendation 7: Review the rules relating to investment research in the context of IPOs – The existing rules regarding the production of research on IPOs should be reviewed to consider if changes should be made to simplify the IPO timetable, while continuing to ensure that potential investors have access to adequate and timely information.

Our Take

The recommendations made by Rachel Kent and her team in the UK Investment Research Review came from an extensive set of interviews conducted over the past four months with financial market participants and in-depth analysis looking to increase the competitiveness of the UK capital markets.  While these recommendations included issues caused by the roll out of MiFID II, they also addressed other concerns including retail investor access to research, the promotion of IPO research, and increased research coverage of UK companies (specifically small cap companies).

Overall, the recommendations made by Ms. Kent and her team were not particularly innovative.  However, they were extremely targeted at trying to enhance the availability of investment research, promote transparency around research management processes, and increase flexibility for asset managers in paying for the research they consume.

We suspect that the recommendations that will receive the most market attention, at least initially will be around Recommendation #2 – Allowing additional optionality in paying for investment research.  However, we suspect that Recommendation #1 – Introducing a Research Platform to help generate research could have significant long-term impact, particularly if a viable model to fund the research platform can be adopted. 

In fact, we would not be surprised if this type of research platform doesn’t promote the kind of boost to the UK research market that the US independent research industry got from the roll out of the $1.4 bln Global Research Analyst Settlement in 2003 through 2008.  We will watch the next steps of this process closely to see what the FCA does with these recommendations now that the ball is in their court.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

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