Asset managers in the UK will see a softening of the MIFID II ban on using dealing commissions to fund research ahead of EU counterparts with fixed income research the most likely beneficiary, a new report published by Bloomberg Intelligence (BI) says.
The Financial Conduct Authority has proposed allowing exemptions to the ban on using commissions to fund research for fixed income, currencies, and commodities as well as companies with a market capitalisation of less than £200 million. the report notes.
BI estimates asset managers in the UK could save up to £6.7 million in compliance costs a year with research costs included in trade spreads again while EU firms would have to wait until at least 2024.
However, BI is sceptical the proposals will have much impact on small company research as the £200 million market capitalisation is too low to make research economical while EU rules will change from next year to allow unbundling on firms worth up to £870 million.
“The small company research payment exemption may have a limited impact on UK asset managers. With industry costs to run a dual research system estimated to top £11 million at the outset and £5 million a year it may prove uneconomical,” said BI Senior Government Analyst Sarah Jane Mahmud.
Standard Life Aberdeen where fixed income accounts for 25% of assets under management, Janus Henderson where it is worth 20% and Schroders where fixed income accounts for 17% are firms which could benefit, BI says.
The BI report, UK Changes Approach to MIFID II, says independent research providers such as Autonomous Research and TSL Research will also benefit from the changes as the FCA plans to exempt them from MIFID II rules on trial periods and marketing.
UK hedge funds however lose out as the FCA has widened rules to require them to pay for the research unlike in the EU, the report adds, with the effect that it may hasten plans to relocate or expand to Dublin or Luxembourg. Around 60% of hedge funds pass research costs on to clients but will struggle to do so if performance dips.
