On 9 May 2025, the Financial Conduct Authority (“FCA”) published Policy Statement PS25/4, introducing changes to the way UK fund managers may pay for investment research. The new rules allow for a joint payment option for research and execution services, subject to a series of “guardrails”.
These changes are in response to the 2023 UK Investment Research Review, which identified that MiFID II’s unbundling of research and execution costs had reduced research availability and created operational burdens, especially for smaller managers. The FCA previously consulted on (CP24/7) and implemented rules (PS24/9) to introduce a joint payment option for MiFID firms. These rules (following on from CP24/21) essentially extend this joint payment option to UK regulated fund managers.
This note summarises the key policy changes and their practical implications.
Who will these rules affect?
The FCA’s final rules will affect:
- UK Undertakings for Collective Investment in Transferable Securities (“UCITS”) management companies;
- full-scope UK Alternative Investment Fund Managers (“AIFMs”); and
- small authorised UK AIFMs and residual collective investment scheme operators.
The final rules might also be of interest to other stakeholders working with these entities such as depositaries of authorised funds or alternative investment funds, investment platforms, financial advisers, investment consultants and investors in authorised funds or alternative investment funds.
New Payment Options for Investment Research
Fund managers may now pay for investment research using a joint payment option, in addition to existing methods (firm’s own resources or a research payment account (“RPA”)). The joint payment option aligns the rules for fund managers with those already in place for MiFID investment firms, but with some of the guardrails adjusted to reflect the differences between fund managers and MiFID investment firms. In summary fund managers must:
- Establish written policies on their approach to joint payments.
- Stipulate the methodology for how the research cost will be calculated and identified separately within total charges for joint payments.
- Establish a research provider payment allocation structure.
- Set budgets for the purchase of research with joint payments.
- Allocate the cost of research fairly to any funds they manage where the budget applies.
- Provide disclosure on joint payments.
- Assess the price and value of research periodically. Value will have to be assessed on a fund-by-fund basis.
- Be responsible for the administration of the accounts for purchasing research with joint payments.
The FCA is broadly proceeding as consulted upon. But pursuant to feedback on CP24/21, the FCA has made the below amendments to the guardrails, which are reflected in the final rules.
- Written policies: The final rules provide for firms to be able to use one set of standardised written policies across fund ranges, with that then being tailored as necessary for specific funds.
- Research budgets: The final rules provide that budgets for research may be set according to a level of aggregation appropriate to the firm’s investment processes. Therefore, to the extent firm are engaged in managing funds and MiFID investment services, firms have greater flexibility to set and allocate research budgets.
- Cost allocation: The FCA has adjusted the guardrail of cost allocation pursuant to adjustments that have been made to research budgets. Firms will be required to allocate the cost of research fairly to the relevant fund or funds where the research budget applies to more than one fund.
- Disclosure: The final rules provide that where research budgets have been exceeded, they will not require such increased budgets to be included in the funds’ prospectus but rather require firms to disclose the proportion of the increase in budgets in the funds’ annual reports (and not an absolute amount of increase).
In addition, the FCA has made certain clarifications in their rules:
- Operational Requirements: The FCA has further clarified in its final rules that firms are responsible for administering accounts for joint payments for purchasing research, considering arrangements such as commission sharing agreements (“CSAs”). There is no requirement for each fund to have a separate CSA.
- Significant change: The final rules clarify that, in respect of authorised retail funds, adopting the joint payment option constitutes a significant change. Fund managers must notify unitholders and the FCA before implementation, following the standard process for significant changes.
- Minor non-monetary benefits: The FCA has updated the rules on acceptable minor non-monetary benefits by including the addition of short-term trading commentary without substantive analysis as an acceptable minor non-monetary benefit and removing research for smaller companies from being an acceptable minor non-monetary benefit.
Practical Considerations and next steps
The FCA’s final rules came into force immediately on the 9 May 2025. Therefore, fund managers are free to adopt the new payment option from now on.
Whilst the FCA’s new framework for investment research payments offers greater flexibility for fund managers, it remains to be seen how many fund managers will take up joint payment options given the strict guardrails surrounding them.
If you have any questions about the changes and how they impact your firm or funds, please get in touch with the key contacts listed or your usual contacts at CMS.
Co-authored by Maya Sajeev, Trainee Solicitor
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