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Britain to ease EU rule on charging asset managers for stock picks
Global Banking & Finance Review®
Company
By Huw Jones
LONDON (Reuters) – Britain may scrap a European Union era rule on how banks and brokers charge investors for stock picks and other company research to help attract more listings to London, the government said on Monday.
The five-year old “unbundling” rule is part of an EU securities law known as MiFID II that Britain kept after Brexit.
It itemises how much asset managers pay for research to gauge value for money. Previously research costs were bundled with charges for executing trades.
Critics blame the rule for a decline in broker research on smaller companies and listings, even though the decline long predates MiFID, and asset managers have also set up their own research teams.
A report headed by Hogan Lovells lawyer Rachel Kent recommends giving the “optionality” to rebundle, given it is allowed on Wall Street, and the EU is also reviewing the rule.
Bundling is not necessarily the whole answer, Kent said.
“In any event, any barriers that prevent UK buy-side firms from paying for investment research in other jurisdictions where payment on a bundled basis is standard practice in that jurisdiction should be removed,” she said.
The report recommends creating a new research platform to promote, source and distribute research on smaller companies looking to list.
“The recommendations in Rachel Kent’s Independent Research Report will be accepted by the Government… It also sets the path for potentially removing the unbundling rules,” the finance ministry said in a statement.
The new platform can be funded in different ways, including an industry levy or rebate on stamp duty, the tax on UK share trading.
She recommends that the Financial Conduct Authority (FCA) reviews rules that currently exclude retail investors from receiving some research. Academics could also help with research on new types of companies, such as AI, where expertise is thin on the ground, she said.
There could also be a code of conduct for research that is sponsored by the issuing company to ensure independence and avoid conflicts of interest, she said.
Many of the recommendations would not need legislation.
“A lot of it can be done by the FCA changing its rules,” Kent said, though government action would be needed if a levy or stamp duty rebate was chosen to help fund a research platform.
(Reporting by Huw Jones; Editing by Sharon Singleton)
MiFID II is a European Union regulation that aims to increase transparency and investor protection in financial markets, particularly regarding the provision of investment research and trading services.
Asset management is the process of managing investments on behalf of clients, including individuals and institutions, to achieve specific financial goals.
The FCA is a regulatory body in the UK responsible for overseeing financial markets and firms to ensure consumer protection and market integrity.
A research platform is a system or service that provides access to investment research, analysis, and data to help investors make informed decisions.
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