Why is the FSM Bill important for UK capital markets?

Since the UK left the European Union (EU), the government, regulatory authorities and industry have collectively embraced an ambitious agenda of regulatory reform. They have proposed targeted improvements to tailor the tapestry of rules we have inherited from the EU and to ensure the UK’s rulebook is fit for purpose outside of the single market. The ongoing reform agenda has provided a unique opportunity to look holistically at the key regimes which govern our capital markets, and to ask the fundamental question “is this the best way to do things?”.

UK Finance has been readily engaged in driving and shaping this novel market reform agenda. Over the last twelve months, we have worked with members to respond to key initiatives such as the Wholesale Markets Review, Lord Hill’s Listings Review and the subsequent Prospectus Regime Review, amongst others. The Financial Services and Markets Bill therefore represents the implementation of many of the changes we have been advocating for.

What will the Bill do?

The Bill proposes several important primary legislative changes to the UK’s capital markets rulebook, and importantly takes forward the UK’s future regulatory framework, empowering the regulator with greater responsibilities for setting rules. What this means is that regulatory requirements currently on the statute book will be repealed, and the regulator will simultaneously reproduce these requirements in its own rulebook and have the power to consult on and amend rules as necessary. In practice, this will enable the UK to regulate with much greater agility and flexibility when it needs to, without the drag of parliamentary process.

We’ve set out in an accompanying document (download link below) a summary of the capital markets and wholesale changes within the Financial Services and Markets Bill. Some of the key items include:

• Empowering the regulators with greater responsibilities
• Removal of the share trading obligation and the double volume cap
  • The share trading obligation requires certain trades to be traded on specific venues. This is at odds with the UK’s ambition to be an open and competitive market.
  • The double volume cap limits the level of dark trading to a certain proportion. It is widely recognised that this is a disproportionate and burdensome requirement.
  • The removal of both share trading obligation (STO) and the double volume cap (DVC) would encourage UK competitiveness.
• Overhaul of the existing EU Prospectus Regulation
  • Reforms will introduce a more agile and proportionate process and reduce the burden on issuers.
  • At the same time greater and enhanced disclosures will better enable investors to make informed investment decisions.

We encourage the swift passage of this Bill. Its implementation will be important in delivering post-Brexit reform and in realising the benefits from these changes. 

What’s next?

The above-referenced reforms maintain high regulatory standards and are a key step in the journey towards strengthening the competitiveness of the UK – but this is not the only step. The UK’s wider ecosystem for business and financial services, including talent, tax and culture should all be considered and, where necessary, addressed to ensure the government and industry’s shared ambition for UK markets can be realised. In approaching the reform of UK capital markets with boldness, energy, and pragmatism, the UK can ensure it is ready for the markets of tomorrow and strengthen its place as a leading global financial centre.

For further details on the Financial Services and Markets Bill more generally and the other aspects it covers, please do visit the blog here from Daniel Wraith from our Strategic Policy team, and our website here.