According to a review of ways to increase the UK’s appeal to investors, a platform for distributing research about companies and a relaxation of restrictions on how analysts’ reports can be paid for are both necessary.
Rachel Kent, a lawyer commissioned by the government to examine the investment research market and review its results, stated in the report published on Monday that the platform could be funded by banks, companies listed on the stock exchange or the financial services industry. She said that the government could provide seed funding.
Kent said that retail investors should have more access to analyst research in order to increase their participation on the equity market. This would also make it easier for them to access knowledge compared to institutional holders. Researchers from universities could contribute to research on innovative firms.
Last week, she reported on her core recommendations regarding the rollback of 2018 European Union regulations that split payments for trading services from research. Kent suggested that those who buy the research be allowed to decide whether they want to keep payments separate from other fees or bundle them together.
This move is intended to counteract a dramatic drop in research in the last five years, following the EU’s MiFID II Directive. The rule was intended to improve transparency and standards. However, it has had the unintended consequence of banks and brokers dropping their coverage due to fund managers’ unwillingness to pay.
Kent told me in an interview that a new approach would allow participants to choose whether or not to bundle fees, and would be “optional”. Kent explained that the reforms were also intended to reverse the decline in the research industry, which began prior to the MiFID changes.
Kent added that a research platform would help “find ways to facilitate investment demand”. It would be more cost-effective for research houses to produce reports, especially on smaller companies, that interested parties can buy via the platform. She said that such a move could increase the amount of money invested in startups, something the government wants to encourage.
Kent stated that the platform might not have to be permanent, and it could be retired after its purpose of stimulating market activity is achieved. Kent said that if the platform is funded by a levy levied on market participants they may be eligible for a stamp duty rebate.
Financial Conduct Authority (FCA) may need to change some rules in order to provide more flexibility for research.