Hogan Lovells Head of Investment Research Review reports recommendations

Tasked with assessing the link between levels of research and the attractiveness of the UK as a destination to list; and making informed recommendations to improve the UK market for investment research, the primary IRR recommendations are:

1. Introduce a Research Platform to help generate research: a central, independent, facility to encourage and facilitate the promotion, sourcing and dissemination of research on publicly traded companies. Potentially open to all but, in particular, to address the research coverage of small and mid-cap companies in the UK. 
2. Additional optionality for paying for investment research: including increasing flexibility and transparency and facilitating a more equitable allocation of the costs of investment research by encouraging a cultural change in the UK markets.
3. Allow greater access to investment research for retail investors: the FCA should consider whether rules could be amended or guidance offered to allow retail investors to access investment research more easily.

Additional recommendations include:

• Involvement of academic institutions and bursaries in the provision of investment research: to explore whether academic institutions could be considered as a potential resource in relation to investment research.
• Support issuer-sponsored research by implementing a code of conduct: enhancing the integrity of sponsored research as a potential useful source of information in its own right.
• Clarfiying aspects of the UK regulatory regime for investment research: and the consideration of introducing a bespoke regime specifically for investment research.
• Review the rules relating to investment research in the context of IPOs: in conjunction with the FCA’s existing work on the implementation of the recommendations of the Listing Review and the Secondary Capital Raising Review.

Rachel Kent, Chair of the Investment Research Review, said: “The UK’s financial services sector is the crown jewel in Britain’s economy; yet it is battling to maintain its global position, including as Europe’s premier market for new listings. The recommended Research Platform could promote a virtuous circle by supporting broader coverage of investment research, and long-term investment; maintaining high standards in the research created; and allowing access to investment research to as broad an audience of investors as possible. More research means better valuations for small and mid-cap companies, more liquidity and more growth. Companies will be happy to list on the LSEG, which in turn will create jobs across the country.

“Ensuring the UK becomes a centre of excellence for investment research requires not only the creation of such new facilities, but also the tackling of obstacles created – often unintentionally – and that is where a review of the current complex and difficult to navigate regulatory regime comes in, particularly in relation to how investment research is paid for; and its availability to retail investors.”

Chancellor of the Exchequer, Jeremy Hunt said: “The government welcomes Rachel Kent’s excellent Investment Research Review published today and has accepted all recommendations made in it. We also welcome the FCA’s commitment to start immediate engagement with the market to inform any rule changes on removing the requirement to unbundle research costs by the first half of next year. This will ensure we are better able to fund quality research into the new Silicon Valley sectors.”

Julia Hoggett, CEO, London Stock Exchange added: “It has become increasingly clear in recent years that there is an opportunity for the research environment to improve. The status quo is not an option, if left untouched, the quality and breadth of research coverage is likely to continue to decline. We welcome Rachel Kent’s investment research review and look forward to working with the industry to explore the best ways to create a world leading vibrant research community which is able to support both investors and the companies of the future.”

ENDS

Notes to editors:

About the Investment Research Review (IRR)

Rachel Kent was appointed on 9 March 2023 to Chair this independent review of investment research and its contribution to the competitiveness of the UK’s capital markets, announced by the Chancellor on 9 December 2022 as part of a package of reforms (known as the Edinburgh Reforms). The Edinburgh Reforms provide a framework for the government’s ambitions for the UK to be the world’s most innovative and competitive global financial centre.

About Rachel Kent

A financial regulation partner at global law firm Hogan Lovells, Rachel was deputy chair of the Policy and Regulation chapter of HM Treasury’s FinTech Strategic Review (FSR) commissioned by Ron Kalifa and published in 2021, and serves as Chair of the International Regulatory Strategy Group (IRSG) UK Regulation Working Group on international access and competitiveness. She has been the lead author of a number of their reports on post Brexit regulatory reform. Hogan Lovells, led by Rachel, is main legal advisor on financial services to HM Treasury, including legal adviser on the Independent panel on Ringfencing.