A recent survey by TABB Group found 46% of buy-side market participants are ‘waiting for the regulation’ before implementing the proposed research payment account (RPA) structure ahead of unbundling rules within MiFID II.
The survey, which was conducted before the publication of the delegated acts, asked participants whether they were planning on implementing RPAs this year and only 12% said yes, with 42% saying they were not.
TABB Group explained it is likely commission sharing agreements (CSAs) will remain the “preferred option” for firms, although highlighted this must be done within the constraints of an RPA.
The study said: “The challenge is the use of dealing commissions within CSAs are just a subsection of what is now required by the European regulators.”
A similar study carried out last year found 67% of asset managers anticipated that commission payments would decline.
TABB Group added that dwindling return on investments is forcing the sell-side to rethink the services they offer, as the buy-side have greater accountability for which firm they choose for such services.
The study added: “If the buy-side decreases its external research spend, internal resourcing may increase but ultimately leads to a decline in sell-side investment in research provision, which in turn leads to a further fall in revenue opportunity for the banks.
MiFID II regulation requires firms to pay for research “direct out of its own resources” or through a “separate RPA funded by a specific charge to the client.”
Following a one year extension, firms must implement MiFID II rules by January 2018.