Research budgets could halve under Mifid II, according to research providers and investments managers.
From January, banks will no longer be able to supply investment research as part of a bundle of services and the move could result in a combined reduction on research and execution spending of $3bn (£2.2bn), a new report from Oliver Wyman estimates.
Overall, there are $1.5bn in potential lost revenues for banks, the report says.
Progress has been made by fund firms in communicating the way they will pay for research under the EU legislation, following a recent Money Marketing report on many of them still being undecided.
For example, Franklin Templeton and Deutsche Asset Management are the latest in the industry to confirm that they will absorb research costs, as opposed to passing the costs on to clients.
Buy and sell side expect to see a reduction of between 20 to 30 per cent in research spend, but some expect the figure could be as high as 50 per cent.
The report states small and medium sized investment firms are likely to be the worst hit, as they will not be able to afford a large number of providers or rely on in-house research teams.