We’ve seen another slew of announcements in recent weeks that again have the potential to reshape how the UK’s capital markets will function – and hopefully grow – in the years ahead. With that in mind we’re going to take a look at what we believe to have been some of the most salient points, along with how this might impact issuers and corporate advisers alike.
Financial Services and Markets bill
The new Financial Services and Markets bill was tabled in Parliament just before the summer recess. This is a wide-reaching bill with multiple objectives, broadly sitting under the umbrella of reversing many pieces of European Union legislation. In the accompanying notes, the objective is summarised as ensuring the rulebook is fair and outcomes-based, whilst maintaining high regulatory standards. Key to this is the removal of the share trading obligation, something which if executed correctly has the ability to help fuel the growth of other exchange venues in the UK such as Multilateral Trading Facilities (MTFs) like Aquis or those operated by banks or brokers, as well as potentially more innovative “challenger” platforms such as CrowdX. Critically this only applies to execution and has no bearing on settlement, but has the potential to drive down trading costs.
The double volume cap which applies to trades placed on an MTF will also be removed, a potentially contentious issue given that this was implemented as a result of the 2007 financial crisis. Whilst it may make life easier for price makers, it also has the potential to test liquidity aggregation technology to ensure that arbitrage takes place in a highly efficient manner. Ensuring the market maker or liquidity provider doesn’t end up with an unfair advantage may be the biggest challenge here.
The Austin Review
Published in mid-July, the Treasury’s review into the secondary capital market has again been designed to make London a listing venue of choice. Chancellor of the Exchequer, the Rt Hon Nadhim Zahawi MP, welcomed the Austin review – so called as it was led by Freshfields partner Mark Austin – and noted in his Mansion House speech that the government had accepted each of the recommendations. Significantly this includes the obligation for listed companies to ensure the retail client base can access primary and secondary fundraising rounds, something that has been facilitated well in recent months by Primary Bid, but the optionality here will be removed.
Proposals also included the demand that fundraising rounds be made cheaper and simpler, in turn ensuring that they can be delivered faster. Ultimately that means issuers will have to ensure they can act in an agile manner – and that their professional advisers can provide the necessary support in a timely fashion, too.
A drive to digitisation is also referenced, something that has been underway for some years with central Securities Depositories Regulation (CSDR) reform. The pathways are well mapped out here and indeed issuers who work on a fully dematerialised basis already benefit from significant savings when it comes to the cost of maintaining a listing and communicating with securities holders. Indeed with our electronic-first approach to securities registry management, our clients already understand first-hand the advantages and efficiencies dematerialisation can bring.
One final point that was heavily debated in the run-up to the publication of the Financial Services and Markets Bill was the role of the Financial Conduct Authority. Strong regulation is without a doubt something that prospective issuers will look for when selecting a listing jurisdiction, but the organisation is to be tasked with a secondary objective of facilitating growth and competitiveness. Whilst there has been no shortage of criticism around this addition to the mandate, given how other more progressive regulatory bodies have been embracing initiatives like this, to facilitate the necessary growth of the UK market, there was arguably little choice. We shouldn’t however expect regulators to change their fastidious approach off the back of this. The fact that those controversial call-in powers which would allow ministers to directly shape financial regulation haven’t been included allows the FCA to maintain that critical degree of autonomy.
This article originally appeared in the August 2022 version of AIM Journal. You can download a printable version here.