FCA lays out research changes to boost investment into London markets
The Financial Conduct Authority has revealed a host of changes to investment research rules today in an attempt to enhance analysts’ coverage of smaller companies and boost investment into the stock market.
A lack of investment research in the UK has been frequently cited as a key reason for declining investment in Britain over the last five years, with billions in funding flowing out of UK funds.
The amount of money spent on investment research budgets has been dropping dramatically in the wake of MiFID II, a set of EU regulations drawn up in 2018 to increase transparency over how asset managers pay for research.
While the reforms to investment research were meant to clamp down on conflicts of interest, they led to a sharp decline in analyst coverage of smaller stocks as funding dried up.
Under the new proposals from the FCA, asset managers for pooled investment funds, alternative investment funds and UCITS funds will be given greater flexibility in how they pay for investment research, making it easier to buy insight and analysis across borders.
“We want UK markets to be efficient and to support economic growth,” said Jon Relleen, director of supervision, policy and competition at the FCA.
“Putting more information in the hands of investors and giving investment firms greater access to research to inform their strategies will bolster UK markets.
“We want to seize opportunities to enhance and streamline our rules and support the competitiveness of sectors in which the UK is already a recognised world leader.”
The watchdog is looking to publish an update on the rules in the first half of 2025 and will then “outline when it comes into effect.”
Despite a recent bounce in the spending on investment research, it has not recovered to “anywhere near where research spending was pre-MiFID II,” said Mike Carrodus, CEO of Substantive Research.
In July, the FCA finalised rules allowing institutional investors more flexibility in paying for investment research, but the City has continued to call for greater reform on the topic.
In addition, the FCA said today it had rolled out new rules to boost the bond and derivatives markets, mandating greater transparency, in terms of timeliness and content of the information published to the market.
It is also lowering compliance costs for trading venues and investment firms by simplifying the regime and providing higher quality post-trade data, which it said will support the creation of a consolidated tape for bonds in the UK.