On 10 July 2023, the Chancellor delivered his first Mansion House speech in which he outlined plans to:
- unlock £75 billion of additional investment from defined contribution and local government pensions, out of a pot worth over £2.5 trillion;
- increase investments in British businesses, particularly high-growth businesses, in line with the Government’s vision of Britain as a science superpower and the world’s next Silicon Valley; and
- enable Britain’s financial and professional services sector (the second largest in the world, which employs over 2.5 million people and generates more than £100 billion in tax revenue) to drive the long-term sustainable growth of the economy.
The plans will be guided by ‘three golden rules’:
- to secure the best possible outcome for pension savers;
- to prioritise a strong and diversified gilt market to deliver an evolutionary, rather than revolutionary, change in the pensions market; and
- to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.
The Mansion House reforms include ‘common sense changes’ to make the UK capital markets the ‘global capital for capital’, aimed at making the UK markets more appealing by:
- simplifying the rules for prospectuses and buying, holding and selling shares;
- laying out plans for a new form of intermittent trading venue to allow private companies to access the capital markets without a listing; and
- improving investment research facilities.
The reforms will be achieved by simplifying, replacing or removing certain EU-inherited rules to make it easier to obtain research, raise funds and list on a stock exchange, building on the Chancellor’s Edinburgh and Solvency II Reforms (which we previously covered here) which the Chancellor expects would unlock over £100 billion of productive investment from insurance firms over the next decade.
We outline the key measures for UK capital markets below.
- Prospectuses: will be simplified to make them easier to produce, accessible, and understandable. On 11 July 2023, the Government published its Policy_Note and the near final version of the Public_Offers_and_Admissions_to_Trading_Regulations, which will empower the FCA with enhanced rulemaking responsibilities. The FCA is currently engaging on potential new rules to replace the EU-inherited prospectus rules for the admission to trading of securities which we have covered here. The FCA plans to publish an autumn feedback summary following engagement with market participants over the summer and expects to conduct a formal consultation of the new rules in early 2024, with the new rules expected to come into effect in 2025.
- Intermittent trading venues: the Chancellor has set out plans to work with regulators and market participants to establish a new form of intermittent trading venue - the first of its kind worldwide - that will allow private companies to access public capital markets without listing on a stock exchange. The London Stock Exchange has indicated that it is in the process of working with the Government and regulators on the creation of a new intermittent trading venue to bridge the gap between the private and public markets and expects to open the venue before the end of 2024.
- Investment research: the recommendations in the Investment Research Review published on 10 July 2023 were accepted by the Government and include:
- introducing a new research platform that will provide a ‘one-stop-shop’ to generate investment research;
- allowing greater access to investment research for retail investors;
- involving academic institutions in supporting investment research initiatives;
- supporting issuer-sponsored research by implementing a code of conduct;
- clarifying aspects of the UK regulatory regime for investment research and introducing a bespoke regime;
- replacing EU-inherited unbundling rules that require brokers to charge a separate fee for research with different options for paying for investment research; and
- reviewing the rules relating to investment research in the context of IPOs.
The FCA has committed to start immediate engagement with the market to inform any rule changes by the first half of next year.
- Digitisation, innovation,settlements and payments: The measures above will be complemented by reforms to digitise the shareholding system by eliminating the use of paper share certificates and cheques for dividend and other payments, and allowing companies to communicate, publish materials and hold general meetings on a solely digital basis. The Digitisation Taskforce is expected to publish its final recommendations and implementation plan to the Government in early 2024.
The Accelerated Settlement Taskforce is also examining the case for settling trades more quickly in the UK and potentially moving to a T+1 settlement period (as would be the case in the United States) and is due to publish its initial findings by December 2023 with a full report and recommendations by December 2024.
The Government has also launched an independent review into the future of payments to help deliver the next generation of world class retail payments, including looking at mobile payments. The Government will also introduce new legislation to give regulators the powers they need to reform rules on innovative payments and fintech services, and, together with the Bank of England, the Government is exploring potential designs for a digital pound and may introduce it in due course.
A public consultation on a new Digital Securities Sandbox has also been launched which will enable and facilitate the testing and adoption of innovative digital asset technology in financial markets.
- Financial Services and Markets Act 2023: the Act received royal assent and came into effect on 29 June 2023. In particular:
- certain EU-inherited rules, the Share Trading Obligation and Double Volume Cap which restrict how and where firms (such as investment banks) can trade shares, have been removed, meaning UK firms can access the best and most liquid markets globally to obtain the best price;
- the Government will have the power to repeal and replace EU-inherited rules over time and has announced that it is commencing the repeal of almost 100 pieces of EU-inherited rules for financial services, further simplifying the UK’s regulatory rulebook; and
- the Financial Conduct Authority and the Prudential Regulation Authority will have new secondary objectives to facilitate the growth and international competitiveness of the UK economy.