The FCA's third consultation on Mifid II has seen the regulator take a tough approach to reforming broker research payments and how advisers interact with clients.
The consultation paper, setting out the FCA's implementation and interpretation of the rules - due to kick in from January 2018 - has seen the watchdog confirm a number of plans, including a decision to take a stricter line on how fund managers pay for investment research.
This will involve either firms paying for research directly or via the creation of research payment accounts (RPAs). The FCA said it expected the latter route to be much more common, and said: "Those who have already adopted best practices in line with our recent dealing commission review should be well placed to adapt to the operation of RPAs.
"For example, the requirement to set a budget for research, and to establish internal governance procedures to assess the quality of research and value it in the client’s best interests are similar to our current expectations."
Introducing these rules, which seek to separate research payments from costs involved in trading stocks and other securities, should result in more "cost-efficient and price competitive" services for consumers, according to the watchdog, because portfolio transaction costs will now only account for execution or dealing.
Elsewhere in the paper, the FCA called on distributors to establish "procedures to assess the target market and risks for new products that the firm manufacturers or distributes".
The regulator has also taken a flexible stance on whether non-Ucits retail schemes (Nurs) and investment trusts will be classified as complex or non-complex - in keeping with the industry interpretation of Mifid II rules revealed by Investment Adviser earlier this year.
"Nurs and investment trusts are neither automatically non-complex nor automatically complex," the paper said.
"They need to be assessed against the criteria in the Mifid II delegated regulation. When firms apply these criteria, they should adopt a cautious approach if there is any doubt as to whether a financial instrument is non-complex."
Industry figures had previously feared that these products would automatically be classed as complex, meaning retail investors would need to complete appropriateness tests before investing.
However, in a more radical move, the FCA proposed to go beyond the scope of rules set out in Mifid II requiring firms to record telephone conversations and electronic communications when providing specific client order services.
As part of this, the regulator has suggested extending the Mifid II taping regime to a wider range of activities than those required by the directive.
This would cover the service of portfolio management, removing a current qualified exemption for discretionary investment managers, as well as the activities of collective portfolio managers and other areas such as energy market activity and corporate finance business.
The regulator said it would be open to suggested alternatives in the case of smaller firms.
