Russell Napier, the co-founder of ERIC (the Electronic Research Interchange), has outlined the risks of a research price war that might begin as MiFID II comes into effect tomorrow. This briefing note is his appeal to the UK's Financial Conduct Authority.

Despite a large number of investment firms deciding to pay for their own research under MiFID II, many have yet to agree on prices with their brokers. Costs remain unclear, even at this late stage, and some commentators are wondering whether providers will charge unreasonably low fees for access to their output. Although fees for a range of research services have been suffering downward pressure since this time last year, peppercorn prices are unacceptable.

The FCA has now promised to act if pricing reaches a stage where research appears so undervalued that it could be considered an 'inducement' to use a provider’s other services. The regulator will want to assess the effect of MiFID II on a variety of areas before deciding whether any remedial action might be necessary. It could take up to 18 months to do this and then intervene in a research market where the product has been undervalued. The FCA should therefore act sooner to ensure that firms are pricing their research fairly.

MiFID II has (nearly) arrived and the time for action is now. Research of high quality is a valuable means by which firms can improve results for investors. If the FCA does not try to iron things out, the market might thwart MiFID II's ultimate aim of benefiting the end investor and harm him instead.