Listings reforms alone won’t be enough – we need to talk about our risk appetite
Reform of the London Stock Exchange is under way – but we’ll need to see support from public and private sector to give our equity markets a boost, writes Clare Cole, Director of Market Oversight at the FCA
A recent industry report gave the UK and its advocates many reasons to be cheerful about its position as a world-leading financial centre. It said that the UK had gained ground against its American counterparts in areas, such as regulation, the skill of its workforce and FinTech.
And we continue to be the leading marketplace for fixed income, FX and commodity trading.
But we know that we cannot afford to be complacent of past, or even current, success. As markets change, we need to adapt and ensure the regulatory environment remains attractive to both sell and buy-side so that the UK secures its position as a world leading place to do business. We need an environment that balances the right level of investor protections with the opportunity for growth and returns.
We’ve seen examples over recent months of companies set-up and grown here, choosing to list overseas and tap other markets for the capital they need. There are many reasons behind a company’s choice of listing venue – tax, peers, investor familiarity with the sector – but we know that our regime has been cited as one of the factors for companies to look elsewhere.
We have worked urgently to implement recommendations from Lord Hill’s listing review and have asked the market searching questions about what aspects they most value. Following feedback, we have proposed real changes to simplify the regime and place disclosure as the foundation for investor protection.
Take the two segments for listings in the UK. The gold-plated ‘premium’ listing was, for many years, coveted by companies due to the reputational benefits it would bring, while the ‘standard’ segment’s flexibility could be used by those who weren’t yet ready or able to adhere to the stringent rules in place for premium listings.
But in recent years, the number of firms seeking to list has clearly fallen, begging the question – what is it for today? If we had a clean sheet of paper, would this be the regime we’d create?
These are the questions we’ve been posing in our recent consultation.
Similarly, with institutional investors buying stocks listed in places with very different levels of protection, is the UK regime, with its additional requirements, necessary and valued?
Our listing reform, however important, must sit within a wider debate about the UK’s appetite for risk and the upkeep of a wider ecosystem where firms feel supported and can grow and succeed
Fundamentally, our listing regime needs to ensure investors have the right information and data so they can use it to understand, and challenge, the quality of the governance in those companies they want to invest in.
In setting our proposals it will come as no surprise that we have looked carefully at what works abroad.
And as we now have an opportunity to update and improve much of the UK’s regulatory system, we believe – through proper consultation – that we should look for ways to enhance the existing standards and tailor them to the UK market as it is now, not as it was in the ‘80s.
During the past two years, we have unveiled a series of significant, regulatory reforms to bolster our competitiveness and create better opportunities for firms and entrepreneurs wanting to do business here.
But our listing reform, however important, must sit within a wider debate about the UK’s appetite for risk and the upkeep of a wider ecosystem where firms feel supported and can grow and succeed.
We will publish further details on the outcome of the consultation on listing reforms in the next few months, but we don’t want this to be the end of the discussion. Private and public sector voices must also consider what they can change to support the goal we’re all aiming for.
Our CEO Nikhil Rathi has been clear that regulatory change can only do so much in turning round the fortunes of the UK’s capital markets. Other important actors have their own parts to play.
If we want to see a rise in UK Initial Public Offerings and a truly dynamic and thriving market, we all need to start putting in place further support and better infrastructure, so budding entrepreneurs will gladly choose the UK as their home.