Speech by Sarah Pritchard, executive director of markets and international, delivered at the Capital Markets Industry Taskforce conference.
Speaker: Sarah Pritchard, executive director of markets and international
Event: The Capital Markets Industry Taskforce conference
Delivered: 6 September 2024
Note: This is the speech as drafted and may differ from the delivered version
Key messages
- We are continuing with our ambitious package of reforms to strengthen the UK’s position in global wholesale markets.
- After undertaking the biggest change to the listing rules in over three decades, we followed up weeks later with a package of measures to further boost the UK’s position as a global and vibrant financial centre.
- Success isn't measured in days, weeks or months. Success is measured in the long-term economic growth of UK capital markets.
In its first year, the Great North Run was advertised as a local fun run. It has now grown into one of the biggest races in the country.
On Sunday, 60,000 runners will make their way along the 13.1 mile route from Newcastle to South Shields. The more than £25m it raises each year for charity relies on more than one person’s half marathon on one particular day.
It relies on the collective thousands of hours in training. Analysing vast amounts of data on smart watches or on Strava. It's the interplay of individual performances in one competitive race.
Likewise for capital markets, it's not about one individual player. It’s about the entire ecosystem coming together so participants can compete, grow and achieve the best results. And for the greater good of a thriving economy.
With your support, we continue to deliver on our ambitious programme of work to strengthen the UK’s position in global wholesale markets.
While we have crossed many milestones, we are not finished yet. Like a long-distance runner attempting to complete the six major marathons across the world to receive the coveted six-star medal, we have many races to come.
Listings reform
Regulation has a role to play in making sure UK capital markets are race fit. That is why we have undertaken the biggest change to the listing rules in over three decades.
It is now exactly 6 weeks since our new listing rules[3] became operational on 29 July.
Over the years the rules governing listed companies in the UK had grown in reach and complexity. With fewer people taking advantage of those complex rules.
Taken as a package, and in light of market evolution, we were told that the regime created disproportionate burdens and restrictions on companies with ambitions to innovate and grow.
Some went so far as to say that listing in the UK was being lost as a consideration. The regime was just too complex with too many barriers. And in the low-interest rate environment, private equity markets were racing ahead. Maintaining the status quo wasn’t an option if we wanted to reverse long-term decline. But it wasn’t easy either.
That’s why we engaged extensively with all parts of the market to listen to all views. Our aim throughout was to start an inclusive and thorough debate to make sure all voices were heard.
We tried to build consensus as much as possible rather than compromise on everything. That can result in decisions no one supports.
And we sought consensus through a discussion on risk appetite – to inform the decisions we have now made which we hope will support capital markets for decades to come.
We looked at our regime holistically and determined that a change in philosophy was needed – moving towards a more disclosure-based regime, which puts the right information in the hands of investors so they can make their own decisions.
This is a better approach for modern markets. It recognises that investors make their own decisions, daily, on where, how and what to invest in.
We concluded that a 'one size fits all' regulator-prescribed approach, written in 2024, would not provide sufficient flexibility for the range of companies who may wish to list. And risks becoming out of date very quickly.
The new rules introduce a simplified regime that maintains high standards, one that is right for the UK, compares well internationally and one which we hope will help boost UK stock markets.
Companies listed in the UK will still be expected to uphold high standards regarding disclosure and corporate governance. And shareholders retain the ability to exercise good stewardship to influence company behaviour and hold the management of the companies they co-own to account.
These remain important and longstanding pillars of the UK markets. We want investors in UK listed markets to have access to timely and appropriate disclosures to make informed investment choices, in a more diverse market of opportunities.
We have been clear from the outset that these changes will shift the dial on risk, but we made this choice in recognition that capital markets are increasingly international.
The investor base has evolved and become more global. UK investors are investing in jurisdictions where they see competitive companies with the promise of attractive returns, and where the frictions we have now removed do not exist. Companies are operating and going public across borders.
Put simply, companies raising capital and investors deploying it have global choices. We want them to choose the UK.
We want to support investors to make their own choices too about the companies they invest in, through timely and appropriate disclosures. And we want to show the regulatory dynamism, which some wags may say is a somewhat oxymoronic phrase, that one commentator credited us with recently. We’ve come a long way and as you know the journey isn't over yet.
Public offers and admissions to trading regime
Just like Sifan Hassan competing for the 5,000m, 10,000m and the marathon at the Paris Olympics, we have not stood still. She continually raised her own bar and ran all three courses in the same week, including the hardest Olympic marathon ever.
Indeed, step by step we continue to run at pace to support the whole ecosystem of the UK’s capital markets.
Just 2 weeks after we confirmed the listing rules reform, we set out proposals for a new public offers and admissions to trading regime[4], to make it cheaper and easier for companies to raise money in the UK.
We progressed this work in tandem because we know the importance of making sure the whole markets ecosystem works. Our proposals were informed by close engagement with the markets.
As part of the process, we set up brand new ways of working through bitesize ‘Engagement Papers’ (or ‘EPs’). Not just because we love acronyms at the FCA, but because we were keen to work differently to solicit views early and openly.
We are proposing more proportionate rules on the disclosures companies are required to make when they seek to admit securities to a regulated market. While we intend to retain prospectus for initial admissions, we will require a prospectus in far fewer cases for further issuances of securities.
This recognises that once issuers already have securities on UK public markets, the wider regulatory framework ensures a high level of transparency and ongoing reporting.
But we will still accept voluntary prospectuses for those issuers that want FCA approved documents, for example to support cross-border capital raising.
High quality disclosures are important. They should evolve with market developments. That is why we proposed some enhancements to prospectus disclosures in relation to sustainability, particularly on climate-related matters and debt instruments marketed as having sustainability-linked features or use of proceeds.
The new framework will allow a more proportionate and agile approach to regulation. It adopts the same philosophy as our listings reform – with a disclosure-based approach that seeks to encourage a rebalanced risk appetite while keeping high standards. We want to get the balance right.
Although our proposals are already informed by a huge amount of prior market input via our engagement papers, we want to know what you think.
Please submit your views online by 18 October.
Investment research
Next on the starting line were new rules that give asset managers greater freedom in how they pay for investment research, by allowing the ‘bundling’ of payments for research and trade execution.
We commissioned data surveys and arranged roundtables to test drive our proposals. It meant we could race forward with our proposals at the point of formal consultation.
We saw that investors are largely getting the research they need, but that there can be operational complexities and unnecessary burdens in doing so. This had adverse impacts on small asset managers.
We listened to these concerns.
Our final rules are shaped by four key themes:
- Flexibility: To work across different types of asset managers.
- Adaptability: Making it easier for asset managers to buy research across borders.
- Investor protection: Guardrails to ensure sufficient investor protection and good outcomes, for example to make sure investors do not absorb the cost of less disciplined overconsumption of low-quality research.
- Preserving competition: To ensure bundled payments do not impede competition in distinct markets.
We intend to have in place similar requirements for pooled funds. Rest assured we will get the market’s input, so the all the practicalities are considered. Please look out for our consultation very soon.
Digital securities sandbox and PISCES
As we race ahead with reforms, we are changing how we engage the market. Markets are always evolving and we know that we cannot stand still as we focus on growth and innovation. We want to be agile, but we want our interventions to be evidence-based and future-proof.
And you can expect us to take the same approach in convening, listening and engaging as we explore ways to harness these opportunities.
Including by helping companies to innovate and scale, while initially remaining private, by creating the world’s first private intermittent capital exchange system – or PISCES.
The PISCES platform will give new investors an opportunity to help companies access new capital to grow.
Growth companies need to meet their own funding requirements to contribute to the overall growth of the economy. This is sometimes referred to as a ‘growth escalator’. Companies will access the escalator in different ways, and the primary, secondary and private markets along that journey. The FCA has a role ensuring regulation doesn't get in the way of companies accessing the capital they need as they move upwards.
We’ve ushered in a new era with our package of capital markets reform and the new Digital Securities Sandbox will allow firms to keep up the pace. The sandbox allows firms to test drive innovative new technologies for trading and settling assets, in a live regulatory environment.
We will continue to work with the Bank of England, government and industry to harness new technologies while protecting the integrity and cleanliness of UK markets.
Value for money framework
When we think about capital markets, it is not enough to just think about issuers. We need to consider the whole investment ecosystem. Pensions schemes are significant investors in capital markets, and it is important that they think carefully about how the best returns can be generated for consumers. This can also have a beneficial impact overall.
Why does that matter?
16 million people are actively saving for their retirement into defined contribution pension schemes, and the vast majority are in the default investments offered to them.
We are proposing greater transparency and metrics that drive a shift from cost to value. It could make a difference for the savings of millions of people and help them get the value they deserve. Here our race becomes a relay.
Never one to jump the gun, we are running the first leg but we’ll work closely with DWP[5] and The Pensions Regulator[6] to gather feedback and insight so we can pass the baton and reach the finish line. On pensions you need a whole system approach. This Value for Money Framework does that.
It’s important we get this right and we welcome feedback on whether the proposals are right for consumers and for businesses.
Conclusion
Before 11 July, many of you may have thought the Listing Rules reforms could not have been delivered. That it would have been too difficult to have a public debate on a shift in risk appetite and it would have been impossible for regulators to support that. That it would have been too difficult to be bold where there are strong differences of view in the market. That the regulator wouldn’t listen. Or that the market wouldn’t tell the regulator what it really thinks.
As I stand before you today, I hope that we can all take confidence from the reforms we have delivered or are consulting on.
Confidence that bold reforms are possible – even where there are diverging views. Confidence that we will listen and confidence that you and market participants will tell us what you think. Confidence that the FCA will work at pace to deliver.
We are continuing with our ambitious package of reforms to strengthen the UK’s position in global wholesale markets.
You can expect us to take the same professional approach in all of this. A willingness to listen, to convene where there are differing views, to make difficult decisions where needed, and to focus on delivery and outcomes.
That outcome is a strong UK capital market. Companies will go where the opportunities exist and we want to set the right race conditions so they can choose the UK.
These changes better reflect the risk appetite needed to achieve growth and a more diversified market. We are putting the choice back to issuers, investors, and markets.
Regulation is only one part of the answer; these changes alone will not guarantee growth so we’re continuing to work closely with government and industry to achieve sustainable growth together.
This is a marathon not a sprint. Success isn't measured in days, weeks or months. Success is measured in the long-term economic growth of UK capital markets. It’s measured in a greater range of companies choosing to list in the UK, grow in the UK and compete on the global stage.