On 25 February 2019, the FCA published a speech given by its chief executive Andrew Bailey (AB) on MiFID II at the European Independent Research Providers Association.

AB begins his speech by focussing on the positive impacts the FCA has seen on the initial implementation of MiFID II. In particular, the FCA has seen a shift by a vast majority of traditional asset managers to fund research from their own revenues instead of using their clients’ funds. The scale of this shift has been beyond the FCA’s expectations. In conjunction, there has been a robust discussion around the value and price of research as “an embryonic market place merges”. AB adds that the “market is going through a period of price discovery, and is probably yet to find an equilibrium”. AB notes, however, that what is becoming clear is “the price of written research is much lower than initial forecasts ahead of MiIFID II.”

AB advises that since last summer the FCA has been carrying out a multi-firm review including buy-side asset managers, sell-side brokers and independent research providers. The FCA’s findings suggest that the new rules are having a positive impact on the accountability and discipline of the buy-side when procuring research, and on the cost of execution. Dealing commission has also fallen, not only due to the removal of research costs, but also because managers are increasingly using more electronic ‘low touch’ channels.

AB also mentions that the European Commission has launched a study on the impacts of the MiFID II reforms on the research market and will review the findings when they are made public.

AB states that the FCA is completing is supervisory work to assess how the MiFID II rules are bedding in and formal feedback will be provided in Q2 2019.