"The IMA does not support ESMA's proposals. Research associated with the use of dealing commissions is not an inducement. Rather, it raises conflicts of interest, which need to be managed. Further, ESMA's proposals would create a muddled regime with never-ending debate about what was allowed and what was not.

"In addition, unilateral change in Europe or the UK would create regulatory arbitrage that would put the UK investment management industry at a competitive disadvantage and the IMA could not support this.

"In February 2014, the IMA's paper "The use of dealing commission for the purchase of investment research" made recommendations to help investment managers reduce research costs and improve procurement practices. It also committed the IMA to a review of disclosure codes that would ensure both retail and institutional clients receive specific and simple-to-understand disclosure of the precise costs of the research that they have paid for from dealing commissions.

"It may be possible to establish an alternative model and the IMA intends to host a conference for global regulators, investment managers and the sell-side providers of investment research to address this. The objective will be to kick-start a process of thorough and objective evaluation of both current and alternative models for the purchase of research, including those where dealing commissions are no longer used.

"The evaluation process must consider the impact that any new model might have on investors and equity market users, including in particular the potential for reduced research coverage, poorer price formation, reduced liquidity in small cap stocks and raised barriers to entry for new entrants to the investment management industry.

"If these issues can be addressed and it was determined that a new, global model for the purchase of research would bring material overall benefits for clients, the IMA would support it, in line with the UK investment management industry's commitmenmitment to constant improvement in value for money, accountability and transparency for investors. In that event, an extended timetable would be required so that new business models on both the buy-side and the sell-side could be developed.

"Whilst this process of assessment is in progress the IMA would point to its February 2014 paper and would expect that further improvements to governance and transparency will continue to be made."