The FCA is to allow research firms to offer trial periods to firms, providing a little more flexibility under the MiFID II rules according to the publication of its final policy statement on the implementation of MiFID II.
While the FCA has confirmed that the research and inducement rules will apply to all firms, including discretionary managers, it has addressed a number of practical issues on the application of the requirements.
This includes adding two new types of ‘acceptable minor non-monetary benefits’ which are in relation to connected research and trial periods.
The FCA will allow limited trial periods for a research service provided that it is for up to three months. Firms are not required to give any monetary or non-monetary reward to the provider and a new trial with the same provider within a 12 month period is not permitted.
It states: ‘An investment firm must also ensure that receiving research for a trial period is consistent with the other conditions for acceptable minor non-monetary benefits and should keep adequate records to allow them to demonstrate that each research trial received is compliant with these conditions.
‘At the end of a trial period, in order to avoid further research from a provider constituting an inducement, a firm would need to either cease receiving it or establish a research agreement and payment terms.’
Meanwhile, the FCA has stated that it accepts the fact ‘connected research’ written by an analyst ‘on an issuer in the specific context of a primary market capital raising event’ should constitute acceptable minor non-monetary benefit.
However the three month trials permissible are not that long and given that separate trials must be at least 12 months apart, do not give the buy-side much time to assess the quality of research they are receiving. A helpful bit of flexibility, but something Asset Managers will need to prioritise to effectively judge the benefits.