Government announces ambitious post-Brexit reforms to UK capital markets regulation

UK wholesale capital markets have been subject to the EU’s Markets in Financial Instruments Directive (MiFID) rules since 2018, whilst the ability to float companies and raise capital in the UK has been governed by the EU Prospectus Regulation since 2017.

Prospectus regime

The changes to the UK Prospectus Regime are aimed at simplifying the regulation so that it is more agile and effective, as well as facilitating wider participation in the ownership of companies and improving the quality of information investors receive. The Financial Conduct Authority (FCA) will be given enhanced rule-making responsibilities covering matters that currently sit in the Prospectus Regulation; for example, it will be able to specify if and when a prospectus is required for admission to trading on Regulated Markets, and whether– and if so, in which circumstances – prospectuses must be reviewed and approved by the FCA prior to their publication.

Wholesale markets

The proposed reforms to MiFID should give firms greater choice about where they can trade and allow them to get the best price for investors. The fixed income and derivatives, and part of the pre-trade, transparency regimes will also be delegated to the FCA. It will be given the tools it needs to ensure that a single data feed from across several trading venues - a consolidated tape (CT) – emerges in the industry (an ambition long held by the EU). A CT will combine market data from multiple areas, giving investors a clear source of information whilst cutting costs and complexity for firms. Other changes include removing unnecessary regulatory burdens for investments firms performing client order functions on own account as Systematic Internalisers, as well as delegating the commodities position limits regime to trading venues to ensure that market activity is not unnecessarily restricted but that markets still function efficiently.

Ground-breaking and welcome reforms?

There is widespread support for the reform of the UK prospectus regime and these changes should help to optimise the capital raising process to list on UK markets and its attractiveness to investors. These extensive regulatory and systemic reforms will give the FCA broad discretion. It remains to be seen quite how the FCA will go forward, balancing the government's desire to encourage retail investment on the one hand, with the need to adequately protect investors on the other.

To see the proposed reforms in full, the 'UK Prospectus Regime Review: Review Outcome' can be found here, whilst the 'Wholesale Markets Review: Consultation Response' can be found here.