For years, Europe’s financial services industry has grappled with one of MiFID II’s most ambitious, and perhaps most disruptive, reforms: the mandated separation (or “unbundling”) of payments for investment research and trade execution services. The policy, intended to eliminate conflicts of interest and ensure clients received value, inadvertently created an administrative headache and was widely blamed for a sharp decline in the provision of research, particularly for Europe’s small and mid-capitalisation (SME) companies.
Now, Brussels has blinked. A new draft Commission Delegated Directive, part of the wider “Listing Act” package, signals a pragmatic shift, giving investment firms a critical choice in how they pay for third-party research.
The New Flexibility: Bundled or Unbundled
The core of the incoming regulatory change, driven by Directive (EU) 2024/2811, is the dismantling of the rigid “unbundling” requirement.
Investment firms will now have the flexibility to choose between paying for execution and research services separately (unbundled) or jointly (bundled). This move effectively lifts the administrative burden that the separation requirement placed on many firms, which previously felt compelled to cease offering research services.
Crucially, the directive removes the prior, restrictive EUR 1 billion market capitalisation threshold, which only permitted joint payments for research on smaller issuers. This broader latitude is designed to foster a more vibrant, resilient capital market and inject much-needed visibility into Europe’s mid-cap sector.
For firms choosing the simplified joint payment method, a new transparency requirement mandates disclosure to clients regarding the payment method used.
The Price of Freedom: Mandatory Quality Assessment
While the Commission is granting greater operational freedom, it is replacing administrative complexity with a new, more substantive compliance obligation. The flexibility on payment structure does not absolve firms of their primary duty to act in the best interest of their clients.
The draft Directive stipulates that, irrespective of whether the firm pays jointly or separately, investment firms must perform an annual assessment of the research they consume. This assessment must be based on robust quality criteria—a new compliance lodestar for the industry—designed to objectively assess the research’s:
- Quality and usability.
- Value.
- Ability to contribute to better investment decisions for the client.
Where the annual assessment reveals a deficit in quality or value, firms are obligated to take remedial action. This could involve requesting the research provider to enhance their output, ceasing the use of the deficient research, or seeking an alternative provider. For financial institutions, this moves compliance scrutiny from mere accounting procedures to the substance and utility of the research itself.
The Separate Payment Legacy
The option to continue with the segregated Research Payment Account (RPA) model remains, and the draft Directive further clarifies the conditions for its operation.
For firms that continue to utilise an RPA, the stringent rules remain:
- The RPA must be funded by a specific research charge levied on the client.
- The research charge must be based on a pre-set, regularly assessed research budget.
- The estimated research charge must not be linked to the volume or value of transactions executed on behalf of the client.
Firms using an RPA must provide clients with both pre-service information on the budgeted amount and annual information detailing the total costs incurred for research.
Implementation Outlook
The regulatory landscape is now firmly set. Member States are required to adopt and publish the necessary provisions to comply with this new Directive by 5 June 2026. The new rules will officially apply from 6 June 2026.
For portfolio managers and investment firms, the coming years will demand a strategic decision: embrace the administrative simplicity of joint payment, or maintain the Research Payment Account model. In either case, the focus has unequivocally shifted from the mechanics of payment to the substance of research quality. The industry will be watching to see if this measured regulatory concession finally stimulates the flow of research that MiFID II’s original architects had intended.
Resource:
Download the Draft Commission Delegated Directive (EU) on MiFID II Research Rules
