The European Commission is setting forth its delegated act that specifies new governance and transparency requirements for investment firms choosing between two distinct research payment models. These rules enact a choice: firms may continue to pay for research separately from trading costs (the “unbundled” model), or opt for the newly re-introduced possibility of paying for research jointly with execution fees (the “re-bundled” model of joint payment accounts). This latter option, introduced as part of a MiFID II review under the Listing Act, risks diminishing cost transparency for clients by broadly re-allowing joint payment practices.
Although “re-bundling” was initially proposed to revitalise SME research, the final legislation expanded this option to all issuers, regardless of market capitalisation. This shift effectively reverses the 2018 “unbundling” mandate aimed at curbing hidden fees and trade-routing bias. It also bypasses the 2021 amendments, which treated joint payments as a strictly limited derogation for issuers below a €1 billion market cap.
BETTER FINANCE warns that current draft rules risk making joint payments the new “standard model”, eroding transparency through loose procedural checks as currently drafted. Without rigorous safeguards, retail investors may unknowingly subsidise research via inflated trading fees (reviving so-called ‘soft commissions' methods) while failing to actually boost research coverage for the SME issuers that need it most. Overall, we align with ESMA’s initial analysis.
To protect retail investors, BETTER FINANCE to enhance three essential safeguards to ensure fairness, best interest, and transparency:
- Transparency: The delegated rules must be more specific in requiring firms to meet actual stringent standards for disclosing and calculating research charges. This should entail defining “quality” value before charging clients. Investors must be able to see that their money pays for rather than simply bearing increased trading fees. Joint payment account methods should thus be formalised and explicitly detailed in firm policies.
- Comparability: Even where research and execution fees are bundled, firms should always be required to provide an estimated split between trading and research costs. Without this, investors cannot effectively compare prices between firms or against brokers who charge separately. The Commission should consider this essential for a level playing field.
- Conflict of Interest & Assessment: The delegated act must be more prescriptive in ensuring that re-bundling does not sideline independent research providers. Provisions should strictly mandate that research agreements never influence execution venue selection, thereby upholding both MiFID “best interest” and “best execution” duties. Finally, a review clause shall assess the actual impact of these rules on market practices and whether the visibility of smaller issuers has improved.
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