The end of any year, is a natural time to take stock, reflect and consider what the future might hold – whatever we might be working on.
Those who follow these things will be aware that the UK’s capital markets are in the midst of the most significant set of reforms for a generation. These were triggered by the recommendations of 2021’s UK Listing Review, which set in motion the Edinburgh Reform Proposals of 2022 and the Financial Services and Markets Act of 2023, all aimed at addressing the identified problems of complexity, inflexibility, administration and retail-excluding disclosure rules. Having been granted additional rule-making powers, the FCA issued a number of high-level proposals for consultation in 2023, on which feedback was received and published.
From a retail inclusion perspective in the UK debt capital markets, the most significant proposals were contained in the FCA’s Engagement Paper 4, which covered non-equity securities. These proposals concerned bond issues and were:
to remove the need to have a retail AND wholesale prospectus, such that only ONE will be required; and
for seasoned investment grade bond issuers who decide to use low denomination sizes, to be subject to even fewer disclosure requirements than currently required when they use high denominations (in order to incentivise a move to lower denominations)
The proposals received strong positive feedback, which was published in December 2023.
Regulatory Milestones
From a retail inclusion perspective, 2024 contained fewer regulatory reforms than expected, with the detailed proposals that were to build on 2023s well received initial proposals (highlighted above), pushed out by the FCA into 2025.
“Given the substantial benefits of retail inclusion to both issuer and investor, this has been frustrating” says Michael Smith, Head of DCM at Winterflood Securities, “however, it should probably be taken as a positive sign that the FCA are giving retail inclusion (through removing the barriers to using low denomination bonds (LDBs)) serious consideration in order to avoid unintended consequences.”
Relevant reform milestones that did occur in 2024, were as follows:
a Public Offers and Admissions to Trading Regulations Regime (POATRs) published in January (to serve as a framework to replace the UK’s Prospectus Regime – and within which final rules on removing barriers to the use of LDBs, thus facilitating retail inclusion, will sit)
final UK Listing Rules published in July (whilst their focus is on equity, the intention is they will read across into debt, making both markets simpler, cheaper and more inclusive)
a Consultation Paper on the new POATRs (CP24/12) published in July containing detailed proposals covering: sustainability related disclosures; future incorporation by reference; supplements; prospectus content requirements; protected forward-looking statements; further issuances; and primary MTFs.
Consumer Composite Investments (Designated Activities) Regulations, which came into force on 22 November 2024. These regulations grant the FCA the power to construct and deliver a new retail disclosure framework for Consumer Composite Investments (CCIs), to replace the UK’s EU inherited PRIIPs regime.
Practical Milestones
In parallel, market participants such as Winterflood Securities, have been making far more progress achieving practical inroads to the challenge of unlocking UK retail investor capital for debt issuers by doing the following:
Facilitating engagement of key stakeholders through arranging roundtable discussions
Directly meeting with issuers, often addressing misconceptions around retail investors
Publishing numerous articles / interviews on the subject; and
Enabling the UK government to raise c. £200m via Gilts and Treasury Bills for the first time via retail investor platforms
If you haven’t heard it yet, one publication that has been gaining increasing interest is this podcast featuring Sarah Boyce from the ACT (representing issuers), Bryn Jones of Rathbones (representing investors) and Michael Smith from Winterflood Securities (representing the market). This was published by TMI about a month ago and was moderated by the excellent Eleanor Hill.
So, what can we expect in 2025?
From a regulatory perspective, we can expect to receive:
In January, an FCA Consultation Paper on low denomination bonds (LDBs)
Consultation about LDBs during Q1 and implementation thereafter
Consumer Composite Investments (Designated Activities) Regulations – the FCA will develop, consult on and implement rules under the new framework to replace the current PRIIPs regime.
From a practical perspective:
supranational bonds made available on retail investor platforms for the first time
further roundtables and issuer meetings
written, audio and visual publications discussing progress from various angles
the first low denomination investment grade corporate bond (under the new regulations)?
Return of Retail to the Bond Markets on the cards, August 2023
Opening up bond market will give corporates more flexibility, September 2023
Retail Revolution for Bond Issuances a step closer, March 2024
The ACT extends its gratitude to our member, James Leather from Corium Treasury, for contributing this article.
