20 May 2024

Bank of England's Pritchard: Aiming for calm seas in our market reforms

We are committed to making sure that regulation supports the UK’s position in global wholesale markets as well as facilitating the UK’s economic growth and international competitiveness; Our outcomes based approach will continue to support innovation, helping our markets remain efficient.

....

Regulation to support efficient capital markets

The size and scale of the UK financial sector is worth reflecting on. It employs more than 2.5 million people and produced £278bn of economic output, which is 12% of the entire UK’s economic output, contributing £100bn in tax revenue.

Its importance is what fires me up every day while doing my job.

So, an efficient and effective capital market underpins the success of the financial sector which is a mainstay of the UK economy.

The FCA is committed to making sure that regulation – and the way we operate as regulators – supports the UK’s position in global wholesale markets as well as facilitating the UK’s economic growth and international competitiveness. As we look to our ambitious agenda for regulatory reform – we start from a strong place.

London is second only to New York in the latest Z/Yen rankings of global financial centres.

But that does not mean there is no scope for further efficiency or indeed reform, and reform which involves a different balance of risk. You will have seen that across the capital markets agenda we are doing just that, through a package of reform which has been well signalled since various government led reviews examining the strength of the UK’s wholesale markets in 2021 – and which are now at the implementation phase.

The reforms include the most significant changes to our listings regime in 40 years, with proposals that would do away with the current separate categories of premium and standard listings for commercial companies in favour of a single category, which will operate with more of a disclosure based philosophy instead of ex-ante controls.

The proposals aim to support investors to make their own decisions on risk and where to invest, based on appropriate disclosure and other safeguards to preserve market integrity and investors’ decision making.

We hope that these reforms will help to boost the UK growth and competitiveness by making our regime more attractive to a wider range of companies, so they are encouraged to list and grow here and so that our framework better aligns with international comparators.

But as we know that these reforms will involve a different balance of risk we have sought to engage extensively across the market, including with investors, to build as much consensus as possible before we reach our final decisions by the summer.

We also know that while regulation can provide the foundations for a successful capital market, it will not necessarily by itself achieve that – other factors are relevant too.

Proportionate capital markets reform

As we take the opportunity of the new smarter regulatory framework, we are busy working on incremental changes where change is sensible to support our objectives – albeit this is not simply change for change’s sake.

We are grasping the opportunities and ambition set out by the government in the Edinburgh reforms. Through reforms that establish a new consolidated tape for bonds, which should result in cheaper, higher quality and more accessible data for its users. To changes to the bond and derivative transparency regime – which aim to recalibrate the regime to drive greater transparency but at a lower cost, for trading venues and investment firms, through more proportionate and better calibrated requirements.

Our work seeks to support transparency through disclosure of relevant, prompt and quality information to investors. This would strengthen investors’ abilities to make decisions and support price formation, market participation and confidence in markets. But in a proportionate manner and cost.

We also know that one size doesn’t always fit all – which is why we have acted quickly in response to the Government-commissioned Investment Research Review, chaired by Rachel Kent, to support greater optionality around how firms can pay for research.

Our proposed reforms seek to give asset managers and others greater flexibility on how they buy research. This greater choice should suit firms of varying business models and sizes, helping to promote competition. It will allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager's own resources or from a dedicated account.

The new plans are also compatible with rules governing research payments in certain other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.

Predictable but future focused regulation

Markets are never static and to be efficient they must be able to adapt.

Our shift to outcomes focused regulation is deliberate – we believe that this approach will better support innovation and changing markets, supporting the UK’s growth and competitiveness and helping markets remain efficient.

To be a success, predictability and agility is important. This is not as incongruous as it sounds.

We want to take the opportunity of the reform that is underway, to be as future facing as possible. I do not want us to be regulating for problems of the past – rather using the lessons from the past to help us set the framework and outcomes that we want to see – balancing our objectives for the future to support markets as they develop.

AI is a case in point. We will not be regulating for regulation’s sake and will be guided by our outcomes-driven approach. But we must provide certainty and encourage the safe adoption of AI in UK finance markets, so we must also look at digital infrastructure, resilience, consumer safety and data....

 more at Bank of England

© Bank of England