FCA to Carry Out Review on MiFID II Research Arrangements

The FCA revealed at its recent Asset Management Conference that it will be undertaking a "diagnostic" review of research and inducements at a range of organisations. With more than $1bn being spent on dealing commissions, the regulator indicated that it wants to be sure such a vast sum is being used wisely by investment firms.

The purpose of the review is for the FCA to understand how the industry has tackled compliance challenges created by the implementation of MiFID II. The review is expected to start imminently and last six months. It will include a questionnaire followed by visits to firms to meet management.

The FCA stated that it wants to understand buy-side systems and controls as well as sell-side pricing models and commercials. It will take a ‘multi-firm’ approach by sampling firms that are both buy and sell-side, large and small, those operating Research Payment Accounts (RPAs) and those paying for research themselves.

It is expected that the FCA will be pragmatic in their assessment, taking a risk-based approach to analysing measures adopted to date. However, firms should be prepared to justify their approach should they be in scope of any such reviews. Any new guidance that the FCA may release in conclusion of the work should be promptly and appropriately reflected.

How can firms prepare?

Senior Managers need to think about how they have interpreted the research payment and inducement rules and be able to justify any approach to implementation. The FCA is likely to ask challenging questions and senior managers must be ready and able to answer promptly.

Firms should make sure their research agreements are in place, specifying all services and associated fees and payment terms. If operating a Research Payment Accounts (RPA), they must be able to show how the value gained from the research is measured and quantified. They need to be sure that their administrative process is in order to clearly indicate who is providing the research and who is receiving payment.

Senior managers should also be confident that newly-implemented systems and controls are operational and effective, including how receipt of unsolicited research is prevented.  Employees must be trained on and understand the new obligations imposed by MiFID II.

For More Information

Contact us if you would like us to review your MiFID II implementation programme and assess your arrangements to make sure they meet regulatory requirements.

About the Author

Charlotte Longman is a Senior Principal Consultant focused on UK Compliance. She is responsible for developing a mixed portfolio of clients, with a focus on capital markets firms that provide brokerage and investment trading services across equities, fixed income and FX markets. Within the projects team, Charlotte specialized in the development of our MiFID II services.

Prior to the acquisition by ACA, Charlotte was Senior Consultant at Cordium, where she had undertaken two external secondments acting as Compliance Manager whilst simultaneously enhancing the firm's market abuse compliance monitoring programme. 

Before joining Cordium, she was Deputy Head of Compliance at a leading FX Broker where she provided day-to-day support for the Global Head of Compliance. Before that, she was the Compliance Officer at a mid-size CFD and Spread Betting provider, holding the CF10 controlled function for three years.

Charlotte obtained her LLB Law from the University of Hertfordshire.