The final rules came into effect from 1 August 2024 and firms that are complying with the requirements can now take up the new payment option available to them. The ‘third option’ available to firms is a bundled payment method for the provision of third-party research and execution services, on top of the existing methods of paying from the firm’s own resources or payment from a dedicated research payment account (RPA).
The final rules are largely in line with the initial proposal set out in the consultation paper. However, the FCA is making some changes. The most significant changes concern the guardrails, and these are summarised below:
- Budgeting – In the proposal, the FCA suggested budgeting could take place at the level of an investment strategy or group of clients. This has been amended to accommodate a level of aggregation that is appropriate to a firm’s investment process, products, services, and clients.
- Disclosures – Firms will no longer need to disclose the most significant research providers but instead will need to disclose the types of providers they have purchased from. The level of aggregation at which such disclosures are to be made, has changed to mirror those of the budgeting guardrail above.
- Price benchmarking – Benchmarking prices against relevant comparators has been removed and instead firms are required to ensure charges to clients are reasonable.
- Cost allocation and disclosure – The FCA has provided latitude to implement alternative levels by which costs are allocated, provided these are appropriate to a firm’s investment process, products, services, and clients.
- Separately identifiable research charges – The FCA has removed the requirement for written agreements and instead firms will be required to establish arrangements that stipulate the methodology for how such research costs are separately identified.
It is worth noting that the new rules set out another option that is available to Firms, however firms will need to be aware of their other contractual agreements such as investment management agreements, and therefore will need to consider what contractual obligations they are under before switching to the new payment option.
The final rules came into effect from 1 August 2024 and firms that are complying with the requirements can now take up the new payment option available to them. The ‘third option’ available to firms is a bundled payment method for the provision of third-party research and execution services, on top of the existing methods of paying from the firm’s own resources or payment from a dedicated research payment account (RPA).
The final rules are largely in line with the initial proposal set out in the consultation paper. However, the FCA is making some changes. The most significant changes concern the guardrails, and these are summarised below:
- Budgeting – In the proposal, the FCA suggested budgeting could take place at the level of an investment strategy or group of clients. This has been amended to accommodate a level of aggregation that is appropriate to a firm’s investment process, products, services, and clients.
- Disclosures – Firms will no longer need to disclose the most significant research providers but instead will need to disclose the types of providers they have purchased from. The level of aggregation at which such disclosures are to be made, has changed to mirror those of the budgeting guardrail above.
- Price benchmarking – Benchmarking prices against relevant comparators has been removed and instead firms are required to ensure charges to clients are reasonable.
- Cost allocation and disclosure – The FCA has provided latitude to implement alternative levels by which costs are allocated, provided these are appropriate to a firm’s investment process, products, services, and clients.
- Separately identifiable research charges – The FCA has removed the requirement for written agreements and instead firms will be required to establish arrangements that stipulate the methodology for how such research costs are separately identified.
It is worth noting that the new rules set out another option that is available to Firms, however firms will need to be aware of their other contractual agreements such as investment management agreements, and therefore will need to consider what contractual obligations they are under before switching to the new payment option.
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