FCA rules on amendments to research payment rules for UK fund managers

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FCA final rules on amendments to the research payment rules for UK fund managers

The UK Financial Conduct Authority (FCA) has finalised its new research payment rules, to extend to UK fund managers the option to use soft commission (called “joint payments” in the new rules) as a permitted method to pay for research. This is a significant development in the UK research market, and offers a return to the soft commission model which had been prohibited under MiFID2.

Client webinar

We’re hosting a client webinar to discuss the rules in more detail on Tuesday 20 May at 1.30pm UK time. Please register here to sign-up.

FCA consultation and final rules

The FCA initially introduced the “joint payments” model only for UK MiFID firms, with the COBS 2.3B rules for MiFID firms in force as from August 2024. Please see our article on those changes here. UK fund managers – including UK AIFMs and UK UCITS management companies – were not covered by those rule changes, and so could not at that point use joint payments.

The FCA published in November 2024 a Consultation Paper (CP24/21: Investment research payment optionality for fund managers) on extending to UK fund managers the new joint payments rules relating to research.

On 9 May 2025, the FCA published a Policy Statement (PS25/4: Investment research payment optionality for fund managers) setting out the final rules for fund managers, which are largely based on the consultation draft. The new rules are set out in COBS 18 Annex 1, with additional rules in COLL (for UK authorised funds only).

The FCA has published the joint payment rules for fund managers as a series of instructions for deemed amendments to COBS 2.3B, along with certain supplemental rules and guidance, rather than a standalone set of rules. To assist with readability, we have produced a consolidated version of the rules, containing both the deemed amendments and parallel guidance. This can be accessed here.

Timing

The new joint payment rules for UK fund managers are immediately effective, as from 9 May 2025.

UK fund managers who wish to use the new model may do so immediately.

Background

• When the FCA implemented the MiFID2 inducements rules in 2018, it decided to “gold plate” those rules to the fund management activities of UK AIFMs and UK UCITS fund managers. This imposed the same unbundled research payment rules on UK fund managers as for UK MiFID firms, under which fund managers can only receive substantive research either (1) if the firm pays for research from its own resources (the P&L model), or (2) if the firm operates a formal Research Payment Account (RPA), funded by its clients.
• Following the UK Investment Research Review (IRR) recommendations, the FCA introduced rules allowing joint payments for research and execution services for MiFID investment firms under certain conditions, aiming to simplify payment options and maintain the benefits of MiFID2 reforms.
• In an August 2024 rule change, the FCA allowed UK MiFID firms to pay for research using “joint payments”. Joint payments means a payment for execution services which covers both execution commission for the broker, and also an additional soft commission element, which is allocated to a commission pool for research payments. This is subject to various guardrails, as client protection measures.

Changes

• The FCA has now extended the option of joint payments for third-party research and execution services to fund managers, including those managing pooled vehicles under the AIFMD and UCITS regimes. This move is intended to address operational complexities and barriers faced by UK asset managers, especially in purchasing overseas research.
• The Policy Statement outlines specific guardrails that fund managers must adhere to if they opt for joint payments, ensuring discipline, transparency, and fairness in research procurement and cost allocation.
• In terms of substance, the changes broadly mirror those brought into place for MiFID firms and are largely the same in terms of substance. In a change from the CP, the FCA has allowed more flexibility by adjusting the guardrail of research budgets so that they can be applied either at the fund level or aggregated across a fund range that is appropriate to firms’ investment processes for managing the investments of the fund or funds. Firms can also have one set of written policies across fund ranges and separate CSAs are not required at fund level.
• In determining whether to adopt joint payments, the FCA expects fund managers to consider the price and value outcome under the Consumer Duty, where applicable.

How can firms implement the new model?

We’re already seeing interest from UK fund managers which wish to implement the new model. It’s worth emphasising that this can sit alongside the P&L and RPA models. Firms could use any one or more of the models, including all three.

The FCA Rules require that firms using the joint payments model must:

1) have a written policy on joint payments, which sets out the firm’s approach to joint payments and summarises how it will comply with the rules
2) establish a methodology for calculating research costs, and ensuring that they are separately identified within joint payments to brokers
3) have a research provider payment allocation structure
4) remain responsible for the administration of accounts, and ensuring timely payments to research providers
5) set an annual budget for research purchases (at an appropriate level of aggregation, and not linked to transaction volumes)
6) allocate fairly the costs of research
7) assess the value, quality and use of research
8) make prior and periodic disclosures to fund investors.

Consequently, adopting the joint payments model will require new policies, new internal processes, and new client-facing disclosures.

Authorised funds

In addition to the core rules for all fund managers (both AIFMs and UCITS management companies), the FCA has also made some additional rules, which apply only to managers of authorised funds.

The Policy Statement outlines that a move to the new payment option of joint payments for investment research should be treated as a ‘significant change’ for authorised retail funds, requiring fund managers to notify unitholders 60 days prior to adoption and seek FCA approval. The CP highlights the necessity for fund managers to continue disclosing ongoing costs and charges, especially if joint payments materially increase a fund's transaction costs.

An authorised fund manager using joint payments should assess the value and quality of investment research within the wider assessment of value under the COLL rules – rather than carrying out a separate assessment of value.

For Qualified Investor Schemes (QIS) and Long-term Asset Funds (LTAFs), the rules are less prescriptive, with LTAFs needing to continue to meet existing notification requirements. Unauthorised funds are not subject to specific notification requirements for making changes, but fairness is expected in the interest of investors.

The rules on prospectus and annual report disclosures are incorporated them into the COLL sourcebook, aiming for simplicity and clarity. The PS also sets expectations for authorised funds to disclose exceeded or increased research budgets in annual reports.

The PS includes rules explicitly permitting payments for research from scheme property.

Other changes

The policy statement also contains certain other changes to the inducements rules for fund managers, not specifically related to joint payments. These mirror equivalent changes to the rules for MiFID firms.

• The FCA has added to the list of acceptable minor non-monetary benefits (AMNMBs) a new express exemption, which confirms that short-term trading commentary is an AMNMB. As such, short-term trading commentary may be received by a UK firm for free, without breaching the inducements rules.
• Separately, the FCA has deleted the existing AMNMB relating to research on companies with a market capitalisation of less than GBP 200 million, on the basis that the new option for joint payments can apply to research on companies of any size and to avoid any additional complexity in the rules. (The equivalent AMNMB exemption relating to corporate access for such issuers remains in place).