As we move from strategy to delivery, focus should be on the reforms that most enhance UK competitiveness, support financial stability and drive growth.

Below are UK Finance’s priorities for delivering on the Chancellor’s ambitions for capital markets. With major jurisdictions, such as the EU and US, movingly quickly on reform, we believe these three areas should be UK policymakers’ focus over the next 6 months to ensure the UK doesn’t fall behind.

1. Ensure the continued growth, stability and resilience of UK capital markets

Following the wide-ranging reforms of recent years, UK equity markets are working well – they are much deeper, more vibrant and liquid than is often perceived. Further fundamental reform of equity market structure would be counter-productive; policymakers must allow the reforms of recent years to bed-in. A missing ingredient, however, is a consolidated tape to demonstrate the full strength of UK markets. A comprehensive equity consolidated tape must be seen through to delivery, to ensure we keep pace with the US and EU. Stronger regulatory oversight of market data costs is also needed.

Recent work by the FCA to revitalise markets, encourage wholesale trading and improve market liquidity is welcome. As part of this work however, the breadth and diversity of investment firms must be recognised. Large non-bank liquidity providers with a significant UK market footprint pose a very different market risk than your typical investment firm. Lower standards for these firms would put both the liquidity and stability of UK markets at risk.

Finally, the UK must take full advantage of the Overseas Recognition Regime. This will enable UK firms to compete in key global markets and reinforce the UK’s status as a world-leading trading hub.

To ensure the continued growth and stability of our markets:

• There should be no further fundamental reform to UK equity market structure. Instead, focus must be on swift delivery of a comprehensive UK equity consolidated tape, now several years in the making, with sufficient pre-trade data depth. This will provide all investors with the information needed to make informed decisions and demonstrate the strength of UK markets. And the FCA must address the significant increase in the cost of wholesale market data.
• A “same risk, same regulatory outcome” approach should be adopted for banks and large non-bank liquidity providers. Regulatory requirements for large, systemic non-bank liquidity providers should reflect their market risk, activities and systemic importance, rather than applying a one-size-fits-all approach.
• Deploy the UK’s recognition regime. HMT should move quickly to leverage the new Overseas Recognition Regime to make unilateral recognition decisions, where this is in the UK’s interest.

2. Embrace the future – drive market transformation

Our competitors are increasingly focused on market modernisation. The UK has made welcome progress in recent years, as seen, for example, in the development of PISCES. We must remain at the forefront of this ongoing market transformation. Securities tokenisation represents a significant opportunity, with global tokenised market capitalisation estimated to hit $2 trillion by 2030.

To drive the transformation of UK markets:

• Advance the Wholesale Financial Markets Digital Strategy with clear milestones and industry partnership. Legislate for dematerialisation, ensuring that shareholder rights are maintained.
• Position the UK as a global centre for securities tokenisation – establish a cross-industry taskforce to support DLT integration with legacy infrastructure; complete at pace the legal and regulatory changes needed for new forms of collateral (such as DIGIT) to be accepted; deliver DIGIT as a matter of priority; and ensure that DIGIT is not a narrow pilot project by committing to a DIGIT series to hasten the wider market transition and establish UK leadership.
• Cryptoasset regulation must not undermine established market practices such as custody services, and a robust and measured framework for stablecoins used in the UK is needed. 

3. Reduce the regulatory burden and cost of doing business in the UK

The Chancellor was right to set the target of reducing the cost of regulation by 25% over the course of the Parliament. Current reporting and disclosure obligations impose significant costs on wholesale banks and the wider market, with much of the data requested by regulators duplicative or redundant. Narrow interpretation of regulations by supervisors can also place additional costs on some firms. To ensure the UK remains an attractive place to do business, reporting and disclosure requirements and supervisory requests must be limited to information that is genuinely useful. 

The FCA should also demonstrate its alignment with the Chancellor’s ambition to reduce the burden of the Consumer Duty on wholesale firms, by bringing forward meaningful proposals. 

To reduce the cost of doing business in the UK:

• Regulators should bring forward quick wins to streamline the UK transaction reporting regime, such as committing to single-sided reporting and reducing the back reporting period to 2 years, and publish a roadmap for ambitious, long-term reform of all three reporting regimes – UK MiFIR, EMIR and SFTR to move towards a simpler, cohesive reporting framework. The FCA should also move quickly to review market disclosure requirements to boost UK IPOs.
• Include the cost of supervision in HMT’s target to reduce the regulatory burden by 25%.
• The Consumer Duty should be disapplied from wholesale activities where adequate retail protections are already provided by existing regimes and must only apply to UK consumers.

For more information, contact:

• Yvonne Deane Harte, Director, Secondary Markets & Post Trade Policy
• Julie Shacklady, Director, Primary Markets and Corporate Finance
• Mark Hudson, Principal, Capital Markets and Wholesale Policy