The FCA's PS23/3, which came into force in August 2023, gave UK-based asset managers flexibility that their EU counterparts do not have: a dual-track approach to research payment. UK firms can pay for research from their own resources (the original MiFID II model), using a research payment account (RPA), or under the combined payment model introduced by PS23/3, where research payments can be bundled with execution costs subject to certain conditions. EU firms operating under ESMA's continued MiFID II framework do not have access to the combined payment model.
That flexibility is now settled. The question for compliance teams in 2026 is whether their compliance manuals, their client disclosures, and their internal election and record-keeping processes accurately reflect the rules as they currently stand, including the threshold changes introduced since PS23/3 and the FCA's ongoing monitoring activity in this area.
The Combined Payment Model: What the Election Requires
Firms electing the combined payment model under PS23/3 must satisfy several conditions. They must set a research charge that is disclosed to clients as a separate budget item, not subsumed within execution costs. They must have a research payment account structure that ensures the research charge is applied only to eligible research expenditure. They must maintain records demonstrating that the combined payment model election is applied consistently across client accounts that are subject to it.
The election documentation requirement is the area where compliance gaps most frequently appear. Many firms made the election in 2023 or 2024 and documented it at the time. The documentation requirement is ongoing: changes to the research budget, changes to the set of eligible research providers, or changes to the firm's approach to applying the combined payment model across different client segments all require updated documentation. A compliance team that has not reviewed its combined payment model records since the initial election may be carrying a documentation gap that it does not know about.
The 2025 Threshold Revision
PS23/3 included a provision allowing the FCA to adjust the threshold at which the combined payment model's record-keeping and disclosure requirements are tightened, based on a CPI indexation mechanism. The FCA applied that mechanism in 2025 to adjust the threshold figure. Firms relying on the original PS23/3 threshold figure without updating for the 2025 adjustment are applying the wrong threshold. The practical effect depends on the firm's research expenditure level relative to the threshold, but for firms near the boundary, the incorrect threshold may result in either under-compliance (failing to apply the tighter requirements when they are triggered) or over-compliance (applying requirements that are not yet triggered, which is not a legal risk but represents unnecessary operational cost).
The threshold adjustment was published in FCA supervisory correspondence and applied through a modification to the FCA Handbook instrument. It was not published as a standalone policy statement. A compliance team monitoring FCA publications by publication type, watching for consultation papers and policy statements, may have missed the threshold change because it did not appear as a headline document.
Record-Keeping Tightened for Larger Firms
For firms above the adjusted threshold, the FCA has tightened record-keeping requirements on research valuation. Firms must be able to demonstrate, on a per-provider and per-research-category basis, how the value of research received was assessed in setting the research charge. The FCA's supervisory reviews have found that firms in this category often hold aggregate research expenditure records but cannot break them down at the level the requirement specifies.
This is a data quality and governance issue as much as a compliance policy issue. The information needed to satisfy the tightened record-keeping requirement may exist within the firm across multiple systems (trading desk records, research team logs, third-party provider invoices) but may not be aggregated or structured for compliance purposes. Building the process to aggregate that information at the required level is a project, not a policy update, and firms that have not started it are likely to encounter difficulty demonstrating compliance if the FCA requests the records.
The UK and EU Divergence for Cross-Border Managers
The divergence between UK and EU research payment rules creates operational complexity for asset managers with both UK and EU-regulated entities. An EU-regulated manager cannot use the combined payment model; a UK entity can. Where the same portfolio manager or research function serves both UK and EU entities, the firm must apply different rules depending on which entity is processing the research payment.
The practical challenge is that internal systems built around the original MiFID II unbundling requirement may not have been updated to reflect the UK track. A system that routes all research payments through an RPA structure for both UK and EU entities may be over-compliant for the UK entity (operating under the combined payment model election) and appropriately compliant for the EU entity, or it may be insufficiently documented for one or both. The compliance team's job is to confirm that the system correctly reflects the applicable rule for each entity and that the records maintained for each track are adequate under the respective regulatory requirement.
We are not saying that operating under the original RPA model in the UK is wrong. For some firms, the operational simplicity of a single approach across UK and EU entities outweighs the flexibility offered by the combined payment model. The point is that the election, or the decision not to elect, needs to be documented and the compliance manual needs to reflect which model the firm actually operates under for each entity. A compliance manual that describes the PS23/3 combined payment model as an available option without specifying whether the firm has elected it is not a compliance document.
Ongoing FCA Monitoring: What to Watch
The FCA has signalled ongoing supervisory interest in research payment practices, including the quality of client disclosures on research charges under the combined payment model and the consistency of research valuation records. Firms operating under the combined payment model election should expect the FCA to request records at some point in the normal supervisory cycle, and those records need to be in the format the requirement specifies, not in whatever format the research payment team finds convenient.
Kalipso tracks FCA publications relating to MiFID II and research payment rules specifically, including supervisory correspondence that modifies threshold figures or clarifies disclosure requirements. When the FCA updates its position in this area, the compliance team receives an alert with a summary of the change and a note of which compliance policy sections are likely to be affected. Monitoring at the instrument-modification level, not just the headline policy statement level, is how firms in the combined payment model election track the adjustments that are most likely to create gaps in their compliance documentation.
