The clock is ticking for MiFID II reversal

Will Europe’s asset managers return, post-MiFID, to funding their research budgets through commission sharing agreements (CSAs), i.e. have the research costs coming out of transaction costs rather than the asset managers’ own P&Ls?

This is a topic that kept coming up at our recent annual research industry conference in New York, where we brought together 400 buy and sell side delegates. It is also a topic that the long-only community is now getting exasperated with.

In May 2025, the UK regulator, the Financial Conduct Authority (FCA) acknowledged that, for the health of the research market, MiFID II needed changing. They created a new “joint payments” structure to encourage asset managers to move to CSA-funding of their research budgets if appropriate, i.e. if they had the conviction that the addition of a few bps to trading commissions for research would have positive outcomes for the performance that they would deliver their clients. Firms would now only have to inform end investors about transitioning to CSAs instead of requiring explicit consent as before, and in recognition of some operational challenges they could budget for research at a broader strategy level instead of at a fund level.

But more important than these tweaks were the signals from the Treasury, as well as the FCA, that CSA-funded research budgets were potentially desirable for the health of the market. Rachel Kent’s excellent 2023 UK Investment Research Review for the Treasury laid out this case, which the FCA then partially implemented. In mid-2025 many of the largest firms decided that this would most likely be a clear market trend, and started planning and preparing the ground.

Why has no one moved yet?

Fast forward to summer 2026, and while some smaller firms have changed over, no one big has moved. A large group of asset managers are ready but haven’t pressed the button. The decision rests with their CEOs and understandably, given that this conversation has an implication on transaction costs for end investors, they need conviction that they won’t be alone if they proceed. No one wants to go first, but all of this group would go second. Also, they were waiting for the EU to align (more dovishly), which happened last month.

“At this make-or-break tipping point the propensity to clarify some general points would have significant impact”

As a benchmarker, our job is to gather and normalise data and report back to clients on how the market lies, but this is the hardest one to call. It’s a behavioural situation, and one that needs a trigger to unwind.

According to most of our clients, the FCA needs to finish the job it started, otherwise the whole endeavour could be a colossal waste of time. The FCA can be forgiven for thinking “How much more do you need? We listened, implemented the new regime, and then even tweaked the details to make it more workable – and you want MORE?!”.

But that misses the point – there are some remaining concerns around treating clients fairly and what you can pay for out of CSAs, and at this make-or-break tipping point the propensity to clarify some general points would have significant impact.

What would the trigger be?

The one thing to watch is any evidence of soft guidance from the FCA on which research and data inputs are CSA-eligible, and how dovish that guidance is. Asset managers are wrestling with data costs, and the ability to confidently include alternative data providers and AI-driven tooling and analytics in a CSA-funded research budget would give them the ability to compete as the technology evolves further. Clarity on this topic would motivate them to move sooner, and send the signal to asset owners that this transition is about being aligned on performance and overall outcomes, rather than arbitrarily passing costs on.

What are the consequences of ongoing inertia?

Vendors are often (fairly!) accused of over-egging industry change that aligns with their revenue growth aspirations, so it’s important for us to note at this point that this move could either be kicked down the road a few years or never happen at all.

If that were the case, there are three things that Joint Payments proponents fear most:

1. A prolonged bear market arrives and forces European long-only asset managers to cut budgets, while US peers continue to invest in better research and become more competitive. This eventually drives further market consolidation and concentration
2. Buy-side P&Ls get swallowed up by market data costs and AI investment, crowding out the ability to get access to the best sell-side analysts, which shrinks the pool of differentiated research even further than MiFID II has done
3. European small and medium asset managers become unable to invest in cutting-edge research analytics and tooling (currently already averaging $700k a year less in spend on this area compared to their US peers)

What’s next?

What are the supposed benefits if the herd effect does kick in and asset managers’ 2027 research budgets are coming out of commissions? The number one benefit from many European asset managers’ perspective is the ability to compete with their North American peers, and amongst many in the small-to-medium buy-side segment that also bestows the ability to remain independent.

Secondly, there is high conviction that greater flexibility in sourcing quality research (without a CFO negotiation required every time the market moves and new inputs become important) will positively affect performance.

AI is going to commoditise a lot of research in the very near future. The industry expects that time with quality sell-side analysts will become increasingly scarce. Many European asset managers think that embracing CSAs will ensure that they are able to afford to compete for the access that they require.

If the FCA does step up and engage once more, then these asset managers will move to notifying clients and will swiftly discover whether asset owners can get on board with this move. What do you think? We’d love to hear.

Mike Carrodus is the CEO of Substantive Research, the research and market data discovery and pricing analytics provider.