A platform to distribute research about companies is necessary alongside a rolling back of rules that restrict how analysts’ reports are paid for, according to a government review on ways to boost the UK’s attractiveness to investors.
The platform could be paid for by banks, the wider financial services industry or companies listing their shares, Rachel Kent, the lawyer asked by the government to review the investment research market, said in the study’s outcome published on Monday. The government could also provide seed funding, she said.
Retail investors should be given more access to analysts’ research to encourage wider participation in the equities market and to reduce their difficulty in accessing knowledge in comparison to institutional holders, Kent said. Universities could also contribute research on innovative companies.
Bloomberg News last week reported her core recommendation on the rolling back of 2018 European Union rules, which split payments for research from the costs of trading services. Instead, those buying the research should be able to choose whether to keep the payments separate or to bundle them with other fees, Kent said.
The move is an attempt to address a significant drop-off in research produced in the past five years in the wake of the EU’s MiFID II directive. The rule was introduced to increase transparency and standards, but a side-effect has been banks and brokers dropping coverage because fund managers — whose own businesses are being squeezed by passive competitors — have not wanted to pay for it.
A new approach would give “optionality” to allow market participants to decide whether to bundle fees or not, Kent said in an interview on Monday. The reforms are also an attempt to address the decline in research that began before the MiFID changes, Kent said.
Cost Effective
Meanwhile, a research platform could help “find a way to facilitate investment demand,” Kent said. The aim would be to make it more cost effective for research houses to write reports particularly on smaller companies that interested parties could buy through the platform. Such a move would hopefully boost the amount of investment going into startups, which the government is keen to support, she said
The platform may not need to be permanent and could be retired if it does its job of stimulating the market, Kent said. If it is paid for through a levy on market participants, they could receive a rebate on stamp duty.
The Financial Conduct Authority may have to amend some rules to increase flexibility about research provision.
