UK government set to move on Investment Research Review recommendations

As UK and EU authorities continue to discuss ways in which their financial services sectors can work together, the UK government has announced significant changes to investment research regulations. A raft of recommendations was announced (and carefully considered) in July 2023 after the completion of the Investment Research Review. While the UK and EU are working independently, they are moving broadly in the same direction regarding investment research changes.

 

Core recommendations

 

The topic of investment research will catch the eye of professional investors as regulators look to make investment research available to the masses. The current regulations prohibit the bundling of paid investment research, to increase transparency, but this has impacted the level of research available from brokers.

 

As the UK authorities look to make the country a “centre of excellence” for investment research, the following recommendations look like being actioned:-

 

1. UK buy-side firms can pay for research from outside the UK on a bundled basis, assuming this is normal practice in the relevant jurisdiction. This will increase the amount of investment research available in the UK, helping professional investors and the broader retail market.

 

2. Increase access to investment research for retail investors (including professional investors). This will be well received by all investors, and indeed, there are already several websites emerging which are collating research from various parties.

 

3. Allowing academic institutions to support various investment research initiatives provides more "meat on the bone". This will also give professional investors more supporting data to consider when looking at their next investment.

 

4. Introduce a research platform to promote, service and disseminate investment research. As we touched on above, this is already happening and is attracting the attention of investors across the board, especially professional investors. This will be a game changer for many investors, who will now be armed with an array of additional information before making decisions.

 

5. Implement an industrywide code of conduct concerning issuer-sponsored research. There are already regulations covering this area of the research market, but further regulations appear imminent. Whether a retail investor or professional investor, whether sponsored research or independent, it is essential to remember that all recommendations are backed up by supporting data.

 

6. While various regulations about investment research already exist, the authorities are considering a bespoke regime. This would focus specifically on the area of investment research, transparency and supporting data.

 

7. Review the rules and regulations about investment research for IPOs. This is a particularly hot topic in the UK, with several IPOs leaving UK shores to go to America. The authorities are fighting back, and institutional, retail and professional investors have welcomed the proposed review.

 

While the UK government and EU authorities are seemingly working independently, they are moving in the same direction, and many new regulations are very similar. For example, the UK authorities introduced regulations in 2022 that relaxed the bundling rules with regard to investment research:-

 

· The FCA released a list of acceptable non-monetary benefits, which would allow research to be bundled.

· The restrictions on bundling do not relate to companies with a market capitalisation of less than £200 million.

· Research on fixed income, currencies and commodities is not covered when looking at bundled research.

· Research notes from independent providers can be purchased as part of a bundle of different services.

 

The EU has already released similar updates, although the £200 million limit announced by the UK is €1 billion under the EU regulations. It will be interesting to see how these moves are received by professional investors and others who have had limited access to research in the past.

 

Summary

 

The above matters are part of the MiFID II regulations and look sure to have a significant impact on UK investment research. Access for retail investors and professional investors has already been welcomed, although, in reality, progress had already been made before these changes. Nevertheless, it will be interesting to see what the future holds and whether the UK and the EU continue to move in a broadly similar direction.

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