(This article originally appeared on Financial News)
IHS Markit is preparing to launch a service to help fund managers comply with new EU rules that are set to shake up the decades-old practice of paying for investment research via dealing commissions.
The financial information provider is developing an extension of its commission management tool – which helps manage the allocation of research and execution spending on behalf of banks, investors and research providers – for release in early 2017.
The updated tool will help buyside firms better manage research budgets with their end clients.
The move is in response to new rules under the revised Markets in Financial Instruments Directive – known as Mifid II and set to come into force in January 2018 – that will force greater transparency over the way asset managers pay for research.
Instead of using client dealing commissions, managers will either have to cover the cost themselves or use a so-called research payment account, RPA – a new concept that must be funded by an annually agreed charge with end clients.
The rules are aimed at increasing transparency and combating potential conflicts of interest but the process of setting up RPAs for each individual client is expected to cause a big administrative burden for the buyside.
Tom Conigliaro, a managing director for investment services at IHS Markit, said the firm’s updated commission management tool will help to “track all payments and allocate budgets down to a very granular level – something which has not historically been required”.
High-profile asset managers, including Woodford Investment Management and Baillie Gifford, have already indicated they will pay for investment research out of their own pockets. Conigliaro added the IHS Markit tool would be available to all asset managers, irrespective of how they decided to pay for research going forward.
With the new service, IHS Markit joins a growing number of financial technology vendors developing solutions to help capital markets companies deal with Mifid II.
London-based startup RSRCHXchange has launched an online marketplace that allows asset managers to purchase institutional research in compliance with new rules, while Paris-based Alphametry has also created a digital market for research.
Meanwhile, London-based Ingage runs an online platform that connects investors to corporates, sidestepping the brokers that have traditionally brought the two sides together through the payment of dealing commissions. Using dealing commissions to pay for corporate access will also be banned under Mifid II.
