The Financial Conduct Authority (FCA) has warned brokers that Mifid II rules on research payments could be extended to sales and trading roles, according to the Financial Times.
Under the rules, which come into force in January, asset managers will have to pay directly for research rather than combing the cost with trading commissions.
So far brokers and investment banks have devised packages for fund managers to receive exclusive research reports from their analysts and direct access to them.
However, it has now emerged that content produced by sales traders taking orders for clients or offering them advice, such as highlighting market trends, could also be classified as research.
According to the Financial Times, the financial watchdog said at a conference this month that if a sales trader offered an idea the fund manager would have to pay for it or be at risk of falling foul of inducement rules.
‘Research departments give a structured output that you can price, but this will be extremely hard to monitor and police,’ a chief executive of one broker broking house - who did not wish to be named – told the Financial Times. They noted the rules would make it more challenging for brokers to interact with the asset management community.
Neil Robson, a regulatory law partner at Katten Muchin Rosenman, told the paper he saw the FCA’s comment to be a warning to the investment bank community, which may have planned to label certain content as ‘non-substantive’.
‘Simply because it’s coming out of the front office doesn’t mean it’s immediately out of scope,’ Rosenman said.
'Asset managers will have to look at everything in context, on a case-by-case basis, to determine if something is research covered by Mifid II rules or not.’