In a series of engagement letters, the Financial Conduct Authority is requesting input into its review of a new regime for public offers and admissions to trading. The papers are part of the authority’s approach to taking forward the government’s ‘Edinburgh Reforms’.
Publishing the engagement letter, the FCA said it was seeking stakeholder views in response to the government’s process of creating a new legislative framework that will give powers to the FCA to set rules for what disclosures companies need to provide when seeking to admit securities to a regulated market.
‘We are interested in [stakeholder] views on whether the current UK prospectus regime broadly works well in the context of wholesale, debt capital markets,’ the authority said. ‘In our view, the current regime in this area does not need a major overhaul but we are interested in views about whether there are any areas that could be improved as part of the new regime.’
The fourth engagement letter focuses on ‘non-equity’ securities, an area that will be of particular interest to corporate treasurers. The letter covers:
The move offers a pathway of accessibility to retail investors, who seek to sit within the existing and functioning wholesale market programme. Treasurers will be given an opportunity to support the delivery of corporate bonds with lower denominations to create financial inclusion. In recent years, retail, which includes wealth managers and high net worth individuals, have been removed from directly accessing bond markets, both primary and secondary, due to the absence of bonds under the wholesale investment threshold of £100,000 and the need to be classed as a ‘professional investor’.
“The paper aims to make bond markets more accessible to all investors and not just institutional investors,” says Stacey Parsons, head of fixed income strategy at Winterflood Securities, and chair of the Investor Access to Regulated Bonds (IARB) working group, of which the London Stock Exchange and ACT are both members. “The ability to issue lower denominated bonds should be easier for listed companies… and remove the barriers of entry to a significant area of unlocked capital in the UK, at a time where investors seek income and yield.”
The FCA is keen to test the water on more ambitious proposals such as reviving the retail bond market for UK-listed companies
According to law firm Slaughter and May, the paper focuses entirely on proposals relating to debt securities with the aims of making medium-term note programmes more efficient, facilitating broader access for the retail investment community to the bond market, and ensuring disclosure obligations are sufficiently calibrated for certain products, in particular, structured products and ESG labelled debt.
“The FCA is keen to test the water on more ambitious proposals such as reviving the retail bond market for UK-listed companies,” the firm says in a briefing note. “However, this market has been subdued for some time, hampered by onerous retail regulations. Whether it can be rescued depends on a number of factors including relaxing regulatory consumer protection barriers to issuing retail debt not just in the UK but also in Europe.
“It also remains to be seen whether issuers can be incentivised to pivot to a retail market when they are able to successfully access funding in a well-functioning institutional market.”
Nick Dilworth, head of compliance, capital markets, at Winterflood Securities, says the moves could mark the “biggest positive and inclusive” change to the bond market for 20 years. He highlights a number of key areas of current divergence in Prospectus regulation between institutional/retail. “The idea with the current proposal is that these differences will hopefully fall away as well as looking to move to a single approach for both institutional and retail customers.”
He adds that retail customers will continue to be protected through requirements in other regulations such as Consumer Duty.
The FCA highlights the current differences, which include:
The deadline for responses to the FCA’s engagement letters is 29 September 2023. Comments can be sent direct to the FCA at POATR@fca.org.uk. The ACT will also be responding to the FCA’s proposals. The Policy & Technical team can be contacted at technical@treasurers.org.
(Source: Slaughter and May)
Philip Smith is editor of The Treasurer