In 2021, the Government published two consultations on reforms to our capital markets regime: the wholesale markets review—which reviews the markets in financial instrument directive (MiFID) regime—and the prospectus regime review. These consultations form part of the Chancellor’s broader vision to improve the competitiveness of the UK’s financial services sector and take advantage of our new freedoms in financial services following our withdrawal from the EU. On 1 March, I announced the next steps we intend to take to reform UK capital markets.
Wholesale markets review/MiFID reform
Deep and liquid wholesale capital markets are at the heart of the UK’s prosperity as an international financial centre. With the development of the EU’s single market, much of our regulatory approach was set in Brussels. Now that we have left the EU, we can use our newfound freedoms to reform these rules to ensure they work for UK markets. I do not intend to make changes for the sake of it, but in many areas of our capital markets regime, it is clear we can improve standards and make regulation more proportionate, cutting costs for firms while improving market integrity. In 2021, we consulted on a number of changes to the MiFID framework, which underpins our regulatory regime for wholesale markets.
The consultation closed in September 2021 and HM Treasury received 78 responses. Respondents from across the financial services sector strongly welcomed the objectives of the review and proposals for reform. In the light of this, I have announced the Government’s intention to bring forward legislative changes when parliamentary time allows, to take forward the most important measures that received the strongest support. These include amendments to five key areas of the regulatory framework:
Trading venues and systematic internalisers (Sis): we will remove unnecessary restrictions on where and how trading can happen, to allow firms to get the best price for investors.
Equity markets: we will legislate to simplify how and when firms need to make trading information public before they trade, to reduce costs and burdens for firms.
Fixed income and derivatives markets: we will reform the transparency regime to reduce costs and increase effectiveness, and the derivatives trading obligation to ease burdens for firms when managing risk and prevent market fragmentation.
Commodity derivatives: we will streamline the position limits regime to make it more effective, proportionate and less burdensome to comply with.
Market data: we will bring forward legislation to enable a consolidated tape which would collate and disseminate real time trading data, to reduce data costs and improve quality.
Where changes can be made to the parts of the regime that are already set out in regulatory rules and guidance, the FCA has committed to progress these in line with its normal processes. Where legislative changes are needed but in future would better sit in regulator rules and are not urgent, the Government will wait until the outcomes of the future regulatory framework (FRF) review have been implemented to bring them forward. The Government believe that this step-by-step approach will ensure that the most burdensome and unnecessary regulatory requirements are removed as soon as possible.
Prospectus regime review
In November 2020, the Chancellor asked Lord Hill of Oareford CBE to lead an independent review of the UK listing regime. Lord Hill made a series of recommendations to help attract the most innovative and successful companies to UK markets and help them access the finance they need to grow. Of particular importance was his recommendation to undertake a fundamental review of the UK’s prospectus regime, which is based on the EU prospectus regulation, now part of retained EU law. This is the regulation which underpins the documents firms must publish when they seek admission to a stock market or raise fresh capital.
Having received widespread support for our proposals from across the sector, I have announced that we will take full advantage of our new regulatory freedoms by repealing the prospectus regulation and replacing it with a regime better tailored to the UK’s position as a global financial centre, when parliamentary time allows.
Our reforms will achieve the following objectives:
The changes will facilitate wider participation in the ownership of public companies, and remove the disincentives that currently exist for the issuance of securities to wide groups of investors—including retail investors.
The changes will simplify the regulation of prospectuses and remove unnecessary duplications, without lowering regulatory standards.
The changes will improve the quality of information investors receive under the prospectus regime, giving them more confidence to make their investment decisions.
The changes will ensure that the regulation of prospectuses is more agile and dynamic, meaning that, in future, the regulation of prospectuses will be better able to respond to innovation and change.
Both of these reforms are core parts of the Government’s commitment to make the most of our new freedoms in financial services. By doing so, we will enhance the functioning and competitiveness of the UK’s capital markets, and ensure they are continuing to help create jobs, support businesses, and power growth across all regions and nations of the UK.
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