On 9 May 2025, the Financial Conduct Authority (FCA) published Policy Statement 25/4: Investment research payment optionality for fund managers (PS25/4).
Background
On 5 November 2024, the FCA published Consultation Paper 24/21 (CP24/21) on investment research payment optionality for fund managers. CP24/21 set out proposals to take forward the recommendations of the Investment Research Review and feedback to the FCA’s previous consultation (CP24/7) on payment optionality for investment research. The deadline for responses to CP24/21 was 16 December 2024.
In PS25/4 the FCA provides its response to the feedback received to CP24/21 and sets out its final rules.
Final rules
The final rules will affect: UK UCITS management companies, full-scope UK alternative investment fund managers (AIFMs) and small authorised UK AIFMs and residual collective investment scheme operators.
The final rules are mostly in line with those that the FCA consulted on in CP24/21.
However, the FCA has amended the guardrail for:
- Written policies by allowing firms to establish one set of standard written policies on joint payments across fund ranges so that it can be modified and applied for a particular fund.
- Research budgets by allowing more flexibility on setting research budgets at a level of aggregation which is appropriate to firms’ processes for managing the investments of the fund or funds. Where firms both manage funds and provide MiFID investment services, and the research contributes to the investment decisions that are relevant to both, the intent of the rules is to allow firms to set research budgets and allocate costs at an appropriate level of aggregation across funds and investment services.
- Cost allocation reflecting adjustments the FCA have made to the level at which research budgets can be set. Firms will be required to allocate the cost of research fairly to the relevant fund or funds and other investment mandates, where the research budget applies to more than one fund and MiFID investment services.
- Disclosure where research budgets have been exceeded or increased. Fund managers of authorised funds will be required to disclose the proportion of increase instead of the amount of increase in the funds’ annual reports. The guardrail will not require the increased research budgets to be disclosed in the funds’ prospectus.
Regarding the value assessment guardrail, the FCA maintain the view that fund managers must assess the value and quality of research for each fund they manage. The FCA have therefore not taken forward the feedback that some respondents thought that the guardrail of value assessment should apply at the level of investment strategies.
On operational requirements, the FCA have clarified that the final rules require firms to be responsible for the administration of the accounts for purchasing research with joint payments taking into consideration their existing operational arrangements including commission sharing agreements (CSAs). The FCA adds that this does not mean that each fund will be required to have a separate CSA to adopt the joint payment option.
The final rules require the take-up of the joint payment option to be treated as a significant change for authorised funds. Fund managers will be required to notify unitholders before the changes take effect. Significant changes to an authorised fund also require notification to the FCA through the usual process for approving changes.
The FCA have made the rule on the inclusion of short-term trading commentary without substantive analysis being an acceptable minor non-monetary benefits and have deleted the existing rule on research for smaller companies being an acceptable minor non-monetary benefit.
Next steps
The final rules came into force on 9 May 2025.
Firms should determine whether and when they might adopt the joint payment option for research.
Firms that decide to take up the joint payment option should familiarise themselves with the final rules.