U.K. Plans to Scrap MiFID Research Rule for Small Firms, Bonds


Britain’s market watchdog proposed easing landmark restrictions on investment research for small companies and fixed income markets in its first efforts to rewrite these rules since the U.K. left the European Union.

The Financial Conduct Authority said analysts’ work on firms with a market value less than 200 million pounds ($278 million) would be exempt from unbundling rules, which were introduced by the EU’s MiFID II reforms to force investors to pay for research separately from trading.

Research on fixed-income, currency and commodities would also be free from the restrictions under the FCA plan. Firms have complained that the curbs imposed extra compliance costs without much benefit, the regulator said on Wednesday.

The revisions apply to one of the most controversial parts of the MiFID II overhaul of securities regulations. The U.K. was a strong backer of unbundling when the law was originally written before Britain, home to a huge cluster of asset-management firms affected by the rules, voted for Brexit.

While the rules have led to lower fees for many investors, the FCA said on Wednesday the higher cost involved in trading shares of smaller public companies “partly reflects the lower amount of information publicly available.” Allowing research on small firms to be packaged in with trading fees could stoke interest among big investors, with limited effects on competition among stockbrokers, the regulator said.

About 79% of public companies with a market value under 250 million pounds have either no research available or are covered by just one analyst, “levels of coverage which may be insufficient to provide a fully informed view for investors,” the FCA said.

The FCA proposal comes after the EU last year eased the requirements on equity research for firms valued at less than 1 billion euros ($1.2 billion).

The consultation launched on Wednesday is part of the U.K.’s broader review of capital markets, which will consider market structure, trading rules for shares, bonds and derivatives, the cost of market data and commodity derivatives trading, the FCA said.

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