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The Financial Conduct Authority (FCA) has announced significant reforms to the UK’s prospectus regime as part of a broader initiative to revitalize the country’s capital markets. The reforms aim to streamline the process for companies raising funds on public markets and alleviate some of the burdens that have deterred firms from listing on the London Stock Exchange.
Key Changes to the Prospectus Regime
In the proposals released today, the FCA plans to reduce the amount of paperwork companies must produce when raising capital. One major change is that prospectus documents will no longer be required for secondary share sales unless they exceed 75% of the existing shares, up from the previous threshold of 20%. This adjustment is expected to significantly ease the regulatory burden on companies looking to raise additional funds.
Additionally, the FCA is reintroducing the practice of “bundling” payments for research and trade execution. This change aims to provide asset managers with “greater freedom” in how they fund investment research, addressing concerns that the ban on bundling has contributed to a decline in research coverage of UK-listed companies over the past decade.
Aiming for a Revitalized Stock Market
These changes are part of a broader strategy to revive the UK’s struggling stock market, which has seen a decrease in listings over the past two years. The FCA has faced criticism for imposing overly burdensome regulations that have driven firms away from the UK market. The departure of British chipmaker Arm to New York last year prompted the FCA to quickly introduce a series of listing rule changes set to take effect next week.
Sarah Pritchard, executive director of markets and international at the FCA, emphasized the importance of these reforms: “The package we have set out today, alongside our recent reforms to the listing rules, will help to strengthen the UK’s position in wholesale markets. We know we need to strike the right balance between protection for investors and allowing capital markets to thrive.”
New Public Offer Platform
The FCA is also consulting on the development of a new public offer platform, providing companies with an “alternative route for raising capital outside public markets.” This proposal aligns with the London Stock Exchange’s efforts to create a hybrid private-public market.
Industry Response
The proposed changes have been positively received by industry leaders. Richard Stone, CEO of the Association of Investment Companies (AIC), praised the reforms as “a victory for common sense” that will help reinvigorate the UK capital markets.
“The proposed changes will empower investment companies to raise capital more easily, removing the cost and burden of producing a prospectus where the company’s shares are already traded,” Stone stated. “We have been arguing for years that the obligation to issue a prospectus for existing companies is an obstacle to growth and particularly punitive for small issuers while adding nothing of value to investors.”
A consultation on the prospectus plans is open until October 18th, allowing stakeholders to provide feedback on the proposed changes.
FCA’s Broader Efforts and NCM Financial UK Ltd.
In addition to these reforms, the FCA continues to address other challenges in the financial sector. In the first quarter of 2024, the FCA mandated the amendment or withdrawal of 2,211 financial promotions, with the retail investment and lending sectors accounting for 85% of these actions. The regulator also received 5,722 reports of potential unauthorized activities and issued 597 alerts, 11% of which were related to clone scams.
The FCA is also scrutinizing trading apps due to concerns that digital engagement practices (DEPs) may encourage excessive risk-taking. A recent study involving over 9,000 consumers found that features like push notifications and prize draws increased trading frequency and riskier decisions by 11% and 12%, respectively. These effects were more pronounced among individuals with low financial literacy, women, and those aged 18-34.
Under the FCA’s Consumer Duty, trading apps must design services that promote informed investment decisions, ensuring that investors make choices aligned with their financial goals.
