Investment funds will once again be able to compensate brokers for investment research by bundling those costs with trading services, under final rules adopted by the U.K.’s Financial Conduct Authority (FCA).
In July 2024, the regulator adopted rules allowing institutional investors to bundle payments for research and trade execution, rather than paying for each service separately. In response to industry demand, it has now extended that flexibility to investment funds.
“As a pro-growth regulator, we aim to improve competition in the market, especially for smaller fund managers, and make it easier for firms to buy research across borders where bundled payments are standard practice,” the FCA said.
The return of research bundling, which regulators initially sought to eliminate in an effort to address potential conflicts of interest in the provision of research, is intended to help support markets, after regulators found that mandating unbundling adversely affected the provision of research.Â
In response, a review recommended “allowing additional payment optionality to reduce barriers and frictions for purchasing research in jurisdictions where bundled payments are standard practice.”
The FCA said that the rules require fund managers that use bundled payments to adopt certain guardrails to protect investors, and that it expects the new rules to increase the quantity of research available, boosting industry competition, and fund managers’ international competitiveness.
“High-quality, easily accessible investment research is crucial for fund managers to make informed investment decisions for the benefit of investors,” the FCA said.