Chapter 1: What changes are being introduced for retail investors in the UK?
We're going to turn back to the UK now. The Chancellor, Rachel Reeves, has cancelled a planned speech at the London Stock Exchange this morning. She was due to attend an address from Downing Street from the Prime Minister instead. But she was due to mark the introduction of new rules for raising capital on London's markets, aimed at making them more competitive.
It's been dubbed a new golden age for the city. Joining us now to discuss Simon Walls, who's the Executive Director for Markets at the Financial Conduct Authority. Simon, good morning. Good to see you. in studio today. Talk us through then the changes coming into force from today. This is about cutting red tape.
Yeah, that's right. I've just hot-footed it over from the stock exchange this morning where they had that big launch. These reforms are called proactra, which is not the snappiest, but there's real substance behind it. There's two things I'd highlight.
One changes to prospectuses, so when companies who are already listed raise new capital on the stock exchange, they used to have to issue a new prospectus at 25%, 20%, and we've raised that all the way to 75%, making it cheaper, easier, and quicker to raise new capital. And then the event this morning was all about the debt side.
We used to have a restriction where if a company issued debt in denominations of below 100,000, there was additional red tape. There were additional forms to fill in. We looked to that. The people who were supposed to read it weren't, and it was really restricting participation for retail. So we've stripped it away. We've made it just the same, over 100,000 to below.
We're actually really enthusiastic. The people retail in the UK may start investing in bonds from as little as a pound. So there was Real energy in the room today, notwithstanding that the Chancellor couldn't make it. Really good speeches and the whole of London's fixed income market out to support the new rules.
So, yeah, so changes on prospectuses, changes on the debt side, as you just mentioned as well. What other areas are you looking at?
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Chapter 2: How do the new prospectus rules simplify capital raising?
Is there still more to come and more that you can do?
Yes, certainly. I'd say we're halfway through a programme of really ambitious reform to UK capital markets. I'd say that each part is different, but the real hallmark is looking at those areas where we have pre-emptive checks often, but not only inherited from the EU and replacing them with disclosures. That's always when it's right and when there's enough information out there for the market.
Our preference is to remove a gate, whether it be a check from the regulator, in some cases for shareholders, and replace it with disclosures and show a bit of faith in the price formation process.
What is the metric that you're judging the success of these changes? Is it the number of IPOs in London?
There's a lot of things. I should stress that we're doing this across all of the UK different asset classes. So it's not only focused on equities. Obviously, today's reform perspective is a major element in equities. We've set our own North Star metrics as the FCA alongside our strategy. Those are big things. We've got UK exports.
We've got the contribution that financial services makes to the overall GDP of the country. But obviously, there's a lot of other factors that go into that. For these particular reforms, yeah, we'll look at the speed with which companies can to raise money. We will look at, in time, IPOs, whether this makes it even more attractive to list and raise capital in the UK. The early signs are good.
But of course, as implied in your question, there are loads of other factors that go into that. We just want to make sure the regulation is an asset to the UK rather than an attraction.
Yeah, I mean, I guess to inject a note of scepticism here, I mean, you know, all very well talking about UK markets hitting record highs, as I think the Chancellor probably would have done. And, you know, talking about a new golden age, former Chancellor talking about Big Bang 2.0.
But can you understand why there can be a degree of scepticism from people in the city who hear politicians talking big, but maybe don't necessarily feel that they've delivered all that much?
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Chapter 3: What reforms are aimed at enhancing retail participation in capital markets?
We are the second largest market in the world, unambiguously. We're the world leader in derivative markets, commodity markets, FX. So there's loads of strength, but it's a competitive world out there. We're competing with all sorts of established and competitive markets. So we need to keep this challenge in mindset. But I'd say the mood is good. But you're right to have some caution.
There's a lot of things. We need to be on this road for a long time.
The FCA has talked about the dialing up risk, meaning that more things will go wrong. What kind of things are you preparing for? And when does the risk cross a red line for you when you're thinking about changes to regulation?
Yeah, it's a good question. Difficult in the abstract. I mean, the first thing I would say is... Everybody in the city and wider into politicians are talking about a move away from risk aversion, this sense that we need to optimise risk rather than just reduce it. But the proof of the pudding is in the eating.
It gets much harder when you talk about specific risks and making sure that the societal appetite is there. One of the things that we're really keen to support is more retail participation in capital markets, broadly defined. Lots of initiatives, the ones I mentioned today, but also targeted support, a way of bridging the gap between full fat financial advice and what people use at the moment.
But the more retail invest in capital markets, we have to accept that sometimes you lose money. This is about the medium term, the long term rather than the short term. And I'm not sure that the societal appetite is yet established. I think we've made great strides, but we need to be on this path for three, four, five years for people to say, okay, the UK has really got it.
And I'd apply that across a whole range of the reforms we're doing. Each of them have downsides. These aren't always low-hanging fruit, but we try and get that out clear and try and get it into society so that when the downsides happen, we can hold our nerve and keep going forward.
Yeah, I mean, maybe one specific risk we could we could talk about then, given that greater appetite for risk, and also, as you said, the desire to see more retail participation, obviously huge theme in in markets and in finance at the moment, is the explosion in private markets that we're seeing Wall Street, you know, hugely excited about the opportunity of
selling some of these alternatives to the wealthy and also to retail investors. Does that kind of full-fat approach to risk in retail participation, does that fully apply when it comes to private markets and grannies investing in PE and all sorts?
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Chapter 4: What metrics are being used to measure the success of the new regulations?
We just need to make sure that it's done in a responsible way.
Okay, Simon, great to have you with us. Thanks very much for joining us on the programme this morning.