FCA aims to make UK 'best place in the world to do business'

In a speech delivered at the Association of Corporate Treasurers Annual Conference 2024 yesterday (May 21), FCA chief executive Nikhil Rathi discussed the regulator’s wide ranging package of reforms aimed at reducing burdens and barriers to raising finance.

As well as supporting the risk appetite in the economy that enables firms to secure the capital they need for investment.

Rathi said: “We want your businesses to be able to access a range of sources of finance, from debt to equity, public and private, at the scale you need when you need it.

“The UK has long struggled with weak business investment which dampened productivity and economic growth. Investment fell to below 17 per cent of GDP from 2000 onwards, down from 23 per cent in the 1980s.

“While much of this is beyond our control as regulators, supporting efforts to turn this round is at the core of the competitiveness objective.”

Rathi explained the FCA was working on making capital raising more agile and less costly and was moving away from a "one size fits all" rule book.

He said: “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.”

Rathi said there were times when it was better off to take a “divergent” approach, to tailor rules to UK markets.

He explained: “In the capital raising space, we also have broad support for facilitating the issuance of low denomination bonds, which would be a new approach to the inherited regime, and will work with treasurers to realise the significant benefits wider participation could bring.

“Wealth managers and those who manage smaller portfolios have also indicated that they would welcome lower denomination bonds and for you these could represent an attractive additional source of demand for UK corporate bonds.

“Broader individual participation in our capital markets, be that your employees or retail investors, should build stronger understanding of the importance of sensible risk-taking to grow our economy.”

Private finance 

Rathi highlighted there had been a surge in private finance activity, suggesting the FCA needed better information to properly appraise the risks to prevent it from unjustifiably restricting an important source of financing to businesses of all types.

He said: “We are doing our own work on valuation practices in the fund industry with a multi-firm review examining valuation practices for private assets. We expect this work to run until the end of the year and will include a probe into the personal accountabilities for valuation practices in firms, governance of valuation committees, what information is reported to boards and oversight of boards.

“And I’ve cautioned the private equity industry that they need to proactively help us get the information we need.”

Technology 

Rathi also discussed that the FCA wanted to leverage AI in a way that “drives benefits to UK markets and consumers and stimulates competition”.

“For now, we are of the view that existing regulations can be applied to this area without writing new rules. But we will keep an open mind if new threats or issues emerge,” he added.

Rathi highlighted the work the FCA was doing was to make the UK “the best place to do business in the world” but added it needed the help of industry to achieve that.

He said: “We need your help. We don’t just make the rules, we help shape the ecosystem and long-term risk appetite that firms operate with.”

alina.khan@ft.com