The FCA's Final Stance on Research Pricing and Payments

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The FCA’s final policy statement validates FeedStock's approach. Released on Monday, the policy statement provides further clarity around what is expected for tracking and calculating accurate research payments.

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The FCA’s announcement confirms what we have always believed will be required in the post MiFID II environment: a clear tracking system with transparent metrics for research payments.

The final MiFID II policy statement released by the FCA on Monday provided further clarity as to how asset managers should operate their research procurement and payment processes post-January 2018. For calculating research payments, the regulators provided the following guidance:

  • Firms must ensure that research budgets are allocated in the best interest of their clients
  • Firms must provide a clear methodology establishing how they are to pay providers for research before they receive and consume services
  • Firms can negotiate research prices with suppliers based on internal value metrics applied to services
  • Firms must evaluate services using qualitative and quantitative frameworks, consistently across providers
  • There should be no correlation between transaction volumes and research payments
  • Regular assessments of research consumption should be conducted to evaluate future procurement decisions and research payment levels
  • Firms must manage inducements for substantive research, while allowing research distribution that is non-substantive
  • Final research payments must correlate to actual services received and may be adjusted in a proportionate and predictable manner
  • Firms must generate and retain metrics that justify their payments and demonstrate that ‘a clear methodology’ has been adhered to
  • Three-month research trial periods are permitted

FeedStock’s integrated MiFID II compliance tool is perfectly aligned to manage these requirements. The system was specifically designed to address the buy-side’s obligation to accurately pay for sell-side research as stipulated by the EU directive. The meticulous usage data produced by FeedStock enables buy-side firms to clearly link their research payments to benefits and services received, making them fully transparent and defensible to the regulator, their investors and the sell-side.

FeedStock Analytics is non-intrusive; it does not interfere with the existing investment process and does not require any behavioural changes on the part of the user – research can still be consumed from multiple sources (email, web browsers, portals and aggregators; users are not forced to use an additional unknown system). FeedStock seeks to be the industry gold standard for research pricing and valuation, by giving the buy-side the granular metrics required to evaluate the quality and quantity of research received and paid for. The usage data is presented visually and can be aggregated as well as dissected, enabling firms to:

  • Accurately apportion research payment for RPA or P&L payments
  • Define their research policy
  • Make future procurement decisions
  • Forecast future research spend through historical usage
  • Demonstrate appropriate controls for payment calculations
  • Manage inducements
  • Fairly and transparently negotiate agreements with research providers
  • Retrospectively analyse their investment process, justify trades and prevent market abuse

Media Relations and Enquiries: contact Daisy Birch (daisy(at)feedstock(dot)com; 0203 884 2000) for further information.

About FeedStock:
FeedStock was founded by Lucas Wurfbain and Charlie Henderson. It has created solutions to help asset managers in these tasks, and seeks to represent best practice processes and controls for research management, pricing and valuations.

FeedStock provides research analytics, inducement management and research workflow solutions to the buy-side. The company’s software integrates with firms’ existing systems to automatically map users’ interactions with investment research providers, generating quantitative and qualitative metrics that enable buy-side firms to accurately calculate their research payments in a way that is proportionate and predictable. With a dynamic user dashboard on which the user can save and categorise selected research, FeedStock brings about transformative efficiencies in productivity. - info(at)feedstock(dot)com

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Daisy Birch
since: 02/2017
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