The Financial Conduct Authority (FCA) has recently published its Policy Statement on Payment Optionality for Investment Research (PS24/9), setting out its final rules on the new option to pay for investment research and execution services on a bundled basis. 

PS24/9 follows the FCA’s consultation issued in April 2024, proposing the introduction of an additional option for investment research payments that would enable authorised firms (such as asset managers) who wish to buy investment research to use bundled payments for third-party research and execution services (CP24/7). For more information on CP24/7, please see our recent article (available here). 

In light of the responses to CP24/7, the FCA has made certain amendments to the rules it consulted on. In particular, PS24/9: 

• clarifies that the budget for the purchase of research using bundled payments should accommodate a level of aggregation that is appropriate to a firm’s investment process, products, services, and clients. In addition, PS24/9 specifies that where a budget is exceeded, a disclosure should be made as soon as reasonably practicable. Such disclosure may be done as part of a firm’s next periodic report on costs and charges. 
• replaces the requirement to disclose the most significant research providers under COBS 2.3B.30(R)(4), with the obligation to publish the different types of providers from which research services are purchased. PS24/9 provides that a breakdown on independent research providers (IRPs) versus non-IRPs is one way of meeting this requirement. The level of aggregation at which such disclosure must be made should be appropriate to the firm’s investment process, products, services and clients.
• amends the draft requirement under CP24/7 to undertake benchmarking of prices paid for research services against relevant comparators to ensure charges to clients are reasonable. Instead, PS24/9 mandates firms to ensure that research charges to clients are reasonable, and has issued guidance within its Conduct of Business sourcebook (COBS) to clarify that the benchmarking of prices paid for research services is one means of demonstrating compliance. 
• provides more flexibility on how to estimate expected annual costs to clients. Previously, these had to be based on both the budget-setting and cost allocation procedures and the actual costs for annual periods. Under PS24/9, these have to be based on the most appropriate of the foregoing. 
• changes the wording of the rules on how research costs are to be separately identified within bundled payments for research and trade execution. The FCA previously required that there be written agreements with research providers establishing a methodology for how research costs are identified separately within total charges for bundled payments. Under PS24/9, the FCA now more broadly requires that arrangements be in place that stipulate such methodology. 

PS24/9 provides that it will affect (i) investment firms and market operators in the UK; (ii) asset managers; (iii) institutional investors (e.g., pension schemes); (iv) insurance firms; (v) banks providing investment services; and (vi) non FCA authorised persons providing research. In addition, the FCA notes that the changes it is making should also apply to fund managers, including UCITS managers and alternative investment fund managers under COBS 18. As a result, the FCA plans to set out the necessary rule changes to achieve this alignment in a future consultation in the autumn. The FCA’s intention is to make the same option available in substance, and it will consider technical aspects of how best to achieve this in practice. 

CP24/7 and PS24/9 are available here and here respectively.