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UK FCA says MiFID II research rules 'working well'

The introduction of the EU's revised Markets in Financial Instruments Directive has resulted in asset managers reducing their research budgets but has not significantly cut coverage of smaller firms, according to the U.K. Financial Conduct Authority.

MiFID II, which took effect in January 2018, require asset managers to separate the cost of research from execution services, and to either charge clients transparently or pay for research themselves.

In a report, the FCA said firms have slashed their budgets for spending on research by between 20% and 30% on average, but noted that most asset managers say they continue to get the research they need despite the cuts. Research coverage of U.K.-listed small and medium-sized enterprises, meanwhile, has not seen a material reduction to date.

The regulator added that the MiFID II research unbundling rules are "working well" for investors, as most asset managers have opted to pay for research using their own revenues instead of clients' funds, resulting in U.K.-managed equity portfolios saving roughly £70 million in the first half of 2018.

The FCA will continue to monitor any impact of the MiFID II rules on competition and research coverage of SMEs by analyzing market data and reviews. It will also continue to track firms' compliance with the rules over the next 12 to 24 months.