“Our plan is to become a smarter regulator, predictable, purposeful and proportionate,” Holland told the ACT's Annual Conference in Wales. “We want to innovate and take on the right risks to encourage growth.”
Responding to audience questions, the FCA director said there was “an enormous internal debate” about current market risks and what the appropriate level of regulation should be to rebalance these risks and the growth objective. He called on all market participants, including corporate treasurers, to work with the regulator to achieve this balance.
“From a regulatory perspective, we have to take everyone with us because otherwise, if we reduce our regulations and there are unintended consequences or market shocks or consumer detriment, that stops with us,” he said. “But if we all know what those risks could be on the way in, people can make the appropriate decision on their own investment risk tolerances. So, it’s about education of investors, of corporates, of every stakeholder to understand that they’re balancing the risks and that we’ve got the appropriate guardrails in place for the risk appetite.”
Well-informed markets are good for everyone. When people are confident and well-informed, it means share prices are a fair reflection and will encourage trading in our markets
During his speech, Holland referred to European Market Infrastructure Regulation (EMIR) reporting and how it can help regulators identify and mitigate potential risks within the capital markets. “Some obstacles are necessary, the pillars of a bridge, perhaps,” he said. “Some reporting is crucial, and we use it every day to help us achieve our objectives. Transaction reporting data, for instance, is used to help combat and detect market abuse... We want to ensure that any obstacles are useful, proportionate and serve a purpose by providing key insights.”
Holland recognised that there is a cost to such regulations and urged treasurers to contact the FCA to raise their concerns: “If there is a more streamlined way of building those bridges, please tell us. We realise the cost to you, but the value of the information provided is key for us achieving our objectives. Well-informed markets are good for everyone. When people are confident and well-informed, it means share prices are a fair reflection and will encourage trading in our markets.”
A crypto regime that gives firms the required clarity to be able to safely innovate while delivering appropriate levels of market integrity and consumer protection is a must
Holland noted how dramatic advances in technology, including artificial intelligence, are transforming financial services. “Where there is new technology, there are new opportunities,” he said, highlighting future regulation of crypto asset activities. “Crypto is a growing industry and currently largely unregulated. A crypto regime that gives firms the required clarity to be able to safely innovate while delivering appropriate levels of market integrity and consumer protection is a must. Our aim is to drive sustainable, long-term growth of crypto in the UK.”
Holland added that the FCA is also using technology to identify market abuse. “Two years ago, before we had put in place technology to look at a situation of market abuse within fixed income markets, it was expected to take three to six months to crunch the data in a particular case. Now that is streamlined, we would be able to do that in a matter days. Analysis that once took days now takes hours.”
Holland also touched on proposals to align disclosure requirements for low denomination bonds with those for higher denominations. “These rules are designed to make it much easier for issuers to raise capital, fuelling growth and making a difference to people’s lives,” he explained. “Corporate bonds offer an alternative investment opportunity for retail investors and can provide a valuable contribution to later life income.”
“Currently, the minimum denomination requirement excludes many retail investors. We recognise there is a high threshold for companies to be able to issue lower denominated corporate bonds... There is an opportunity for these new rules to make a real difference. It will create a wider investor base which can drive growth for your companies and the economy.”
“By reforming our rules, we hope to drum up business, increase liquidity and improve access to finance.”
About the author
Philip Smith is editor of The Treasurer