Time is running out for those investment firms wishing to pass on the costs of investment research to UK authorised funds (UCITS, NURS, QIS) when the Second Markets in Financial Instruments Directive (“MiFiD II”) comes into force on 3 January 2018.

If the costs of research are to be passed on to UK authorised funds through the mechanism of a Research Payment Account, fund prospectuses will need to be amended to introduce a new charge out of the scheme property. Ordinarily, under section 4.3 of the FCA’s Collective Investment Schemes sourcebook (“COLL”) the addition of such a charge would amount to a “fundamental change” and would therefore require shareholders to pass an extraordinary resolution before it could be introduced. However, the FCA has addressed this by adding Transitional Provision 47 (“TP 47”) to COLL. TP 47 states that the introduction of a new charge to cover research costs would only be categorised as “significant”, meaning that the shareholders simply need to be given 60 days’ pre-event notice.

In addition to this notice requirement, the FCA has confirmed to the CMS Funds Team that they must approve the necessary amendments introducing the charge to the fund’s prospectus. Accordingly, FCA approval must be sought in line with the normal process, namely by submitting the relevant Form, the revised documentation and the proposed notification to investors. We understand that the FCA have no current plans to introduce an expedited process for the introduction of charges to cover research costs. Firms will therefore have to factor in the FCA’s statutory one-month approval period.

Adding this statutory one month approval period to the 60 day pre-event notice, if investment managers wish to pursue the option of introducing a new charge before MiFiD II’s implementation, their submission to the FCA will need to be made by the end of September 2017. It is therefore crucial that investment managers come to a decision on their chosen approach to research costs as a matter of urgency.