While no one doubted this moment would eventually come, I don’t think anyone anticipated the speed with which the FCA would begin to examine the impact of MiFID II on research payments. Last week’s announcement that it had launched an investigation into whether the sell-side was pricing their investment research services (a) competitively and (b) in the spirit of the regulation came as a surprise to many.
It appears the FCA is determined to ensure that tactics are not being used to circumvent the directive and avoid regulatory oversight. The scrutiny will likely prompt producers of research to introduce multi-tiered ‘Pay as You Go’ pricing models and cease licencing waterfront access to their research libraries for nominal fees that – it has been argued – can be construed as an inducement. That the FCA is moving to uphold “the spirit” of the regulation further indicates that they will interrogate the way research services are being valued by asset managers and that historical broker vote systems, which are prone to personal and temporal bias, have been abandoned in favour of ex-ante assessments.
The upshot of this all will inevitably be more work for asset managers, with whom the responsibility to record and value research interactions lies. The time-consuming act of logging and valuing research consumption through manual methods is simply untenable when pressure on margins is unprecedented. Moreover, such methods are prone to being inaccurate and incomplete, and distract revenue generators from their core activities. FeedStock’s automatic data gathering functionality resolves these challenges while making users more competitive.
As unexpected as it may have been, this week’s announcement should be seen as warning shots for the ill-prepared.