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Dawn of Spring on the North Colonnade

The UK regulator has been planting seeds around the topics of unbundling, research and corporate access for a decade, so last Friday’s budding announcement should not have come as a surprise.

Perhaps because there has been no enforcement to date of rules announced in 2014, the assumption has been these rules are no longer a focus of attention, with all eyes on the implementation of MiFID II on 3rd January 2018.

What we’ve learned is the FCA still takes the issue deadly seriously and expects to see compliance with the current regime, not just under MiFID II.  The new news is a tie-in to the Senior Managers Regime, with explicit comments of an intention to hold Boards and individuals to account.   

A comprehensive analysis is not possible in a short blog post, so this briefly highlights a few key issues. For more comprehensive information click here

- “The majority of firms we visited are still falling short of our expectations.”  This is good news for firms – they can’t enforce against everyone.  They will go for worst offenders, and the following comment tells us what’s in their sights: “At the extreme end, some continued to use dealing commission to purchase non-permissible items, such as corporate access and market data services, contrary to our rules.”

- “The majority of firms continued to treat the receipt of corporate access from brokers as a free provision.”  Record keeping & reporting features heavily, for both research and corporate access.  Firms are generally not recording to the standard required what they’re receiving or how it’s being treated - and so cannot demonstrate compliance with the rules.  These record keeping requirements get even more onerous under MiFID II.  

- “In contrast, a few organisations attempted to partially mitigate the risk of indirectly paying for corporate access by paying for it from their own resources.”  It is very clear what the regulator sees as best practice.

- From an IRO’s perspective what does this mean?  Many firms have largely ignored these rules, the FCA expects to see compliance and will hold individuals to account.  To date there has been very little explicit pricing of sell-side research or corporate access.  This needs to happen.  We’ve already seen a shift in behaviour, with more buy-side firms internalising research & corporate access, paying for it from P&L, and engaging with companies direct.  This will accelerate the change.

© Michael Hufton, ingage IR LTD, March 2017

Published: 9 March, 2017