Responding to a question at the recent ACT Annual Conference on whether the FCA will allow lower denomination issues, and if so, when, Rathi said the FCA was “seeking to allow low denomination bond issuance and I am hoping that will progress during the course of this year, so the answer is yes”.
His comments come in the wake of the FCA’s review of the so-called ‘dual-disclosure standard’ that favours bond denominations of more that £100,000, effectively closing the bond market to individual ‘retail’ investors. The FCA is now proposing to adopt a single standard for bond disclosures, which could re-open the retail corporate bond market that had been closed by regulatory changes nearly 20 years ago.
Rathi told the treasury forum: “This is so important for buy-in to our capital markets and our capitalist system that retail, and individual investors and employees can participate. Advisers can sometimes be a bit nervous about this, but we hope that people do embrace it.”
We still expect corporates to engage actively with their shareholders and consider their interests carefully in their decision-making
Earlier, Rathi said he “welcomed engagement with the ACT on our overhaul of UK capital markets – a move to a single equity listing category removing the more prescriptive rules, relying more on disclosure such as on significant transactions, and better aligning with international norms. Final rules will come very soon.”
He added that the FCA was also working on a replacement prospectus regime to make capital raising more agile and less costly. “Whilst we are moving away from a ‘one size fits all’ rule book with less prescription around how firms engage with their shareholders, we still expect corporates to engage actively with their shareholders and consider their interests carefully in their decision-making.
“Key for you is pricing and liquidity. And we are working to optimise transparency in bond and derivatives markets. A well-functioning secondary market with robust market infrastructure is key to the treasury function and we have an opportunity to adjust some inherited EU rules to better suit the UK’s global wholesale markets, whilst maintaining internationally consistent standards.
“Some bond and derivatives markets cannot sustain the same levels of real-time or close to real-time transparency as others and we will allow for more flexibility to ensure markets remain liquid and accessible.”
We are not against the money market funds industry
Rathi was also asked whether the FCA was failing to support the money market fund industry by applying a ‘capital at risk’ label when MMFs argued that they reduced the bank counterparty risk through diversification. Rathi responded by saying: “We are not against the money market funds industry. We have spent a lot of time working with our colleagues around the world to get to an international agreement around the right balance between providing this convenient product for investors but also ensuring liquidity risks are managed effectively.
“We saw in 2020 that there were some challenges when there was liquidity pressure, which was why we imposed certain liquidity thresholds, but we see diversification of funding sources and funding vehicles as a benefit. We have a competition objective too, so we have no agenda against one particular part of the industry, though we need to bear in mind that many MMFs are domiciled in EU jurisdictions, even though the management is often delegated to London.”
Rathi noted how technology innovation was reducing settlement times for equities and other securities – the US moved to T+1 (trade settled one day after the deal was struck) from a T+2 system at the end of last month. In response, Rathi commented on the recommendation from the Accelerated Settlement Taskforce, accepted by the government, that the UK should also move to such a settlement timetable by 2027, with operational changes beginning from 2025.
“Shortening the settlement cycle to T+1 from T+2 would align us with the US. Other major markets, such as India, have already made a move,” he said. “We at the FCA are observers in the group which will consider what changes are needed.”
Rathi ended his main speech with a request that treasurers continue to contribute to how rules are formulated, saying: “We don’t just make the rules, we help shape the ecosystem and long-term risk appetite that firms operate with. We are just one part of that ecosystem though and we invite ACT members to further engage with us, to make our rules work for you, our markets, investors, and our economy.”
A copy of Nikhil Rathi’s speech at the ACT Annual Conference can be found here.
Philip Smith is editor of The Treasurer The ACT Annual Conference 2025 will be held at ICC Wales 20-21 May. Register your interest