Measures to boost the effectiveness of the UK’s primary debt-capital markets have been unveiled by the Financial Conduct Authority (FCA).
In a 27 April report, the regulator’s acting chief executive, Tracey McDermott, explained that the changes have stemmed from her organisation’s work leading the UK Debt Market Forum – a cross-industry group set up in November to examine how well the current system is operating.
“When I announced the creation of the Forum,” McDermott wrote, “I noted the importance of deep, liquid, well-functioning capital markets to the wider economy.
“As we look to move on from the crises of recent years, these markets will have a central role to play in supporting sustainable economic growth. This is a core driver of the EU Commission’s action plan for capital markets union.”
She added: “One of the tasks of the FCA in wholesale markets is to identify where improvements to those markets need to be made and to drive their delivery.
“The Forum has successfully brought together and drawn upon the collective wisdom of a wide range of parties, representing issuers, investors, exchanges, advisers and policymakers. Our common goal was to identify practical measures to enhance the UK’s primary debt markets.”
As outlined in the report, the key measures are:
Focusing in greater depth on the third point, the report explained: “Many debt issuers will have multiple guarantors in their group structures. Often this is because the guarantees will be so-called ‘upstream guarantees’ put in place between group companies for the purpose of ensuring the liabilities of the issuer rank pari passu with other group liabilities.
“If financial information on all of these guarantor companies is included in a document, it can result in an unduly lengthy document, which is significantly more costly to produce. We have, for example, come across structures involving dozens of guarantors.”
With that in mind, the report stated, “[the FCA is] launching a public consultation on a guidance note, which will provide greater clarity over the circumstances in which we may be prepared to derogate from the requirement to include financial information on a guarantor, including for example, where it can be demonstrated that, among other things, the guarantor(s) represent(s) at least 80% of an issuer’s consolidated accounts assessed on a range of metrics.”
It added: “This approach is successfully employed elsewhere in Europe, and our current view is that it is proportionate and sensible. The guidance note describes the principles we will look to apply, as opposed to exhaustive or mandatory criteria; we will apply discretion and take account of the specific factors which may apply to each individual case.”