Ministers must proceed reforming London’s capital markets or threat shedding floor to rival cities within the EU and US, the writer of the UK’s newest market deregulation proposals has warned.
Final week, the Treasury backed a sequence of reforms drawn up by Freshfields’ lawyer Mark Austin to make it faster, simpler and cheaper for corporations to lift cash in London.
His six-month evaluate really helpful making certain that retail traders ought to be allowed to participate in all fairness raisings, together with these beforehand the protect of institutional traders.
Austin additionally pushed for shares to be held in digital types exhibiting their possession to “improve the power of particular person shareholders to constructively interact with corporations on governance and ESG points”.
In an interview with the Monetary Instances, Austin described these adjustments as “as soon as in a era” reforms that alongside work really helpful in a earlier evaluate carried out by Lord Jonathan Hill will make London as enticing as wherever exterior the US for corporations to lift cash.
However he added that the UK was vulnerable to complacency at a time when rival cities within the EU have been preventing more durable to change into extra enticing to corporations and traders.
“There’s no level having a theoretically excellent market if nobody makes use of it,” he mentioned.
“By the center of subsequent yr, London could have a regulatory regime that’s modernised and match for objective. However is that the tip of the story in making the market future-proof for the subsequent 20 years? Completely not. We’ve received a lot wider points.”
Austin argues that the UK must change into extra “streetwise”, and tackle an “rebel” mentality relatively than merely counting on its historical past as a monetary capital.
“Once we have been within the EU, we have been the default place for western capital. We’re not essentially any extra. We must always justify all the things by reference as to if we nonetheless want it, and what use it serves. As a result of I feel if you happen to requested that query throughout loads of our itemizing regime, you don’t really need it.”
As a company lawyer, Austin creates “grids” of professionals and cons for shoppers for various cities when assessing the place to checklist. “Till now, we haven’t come out that effectively, the quantity of friction we have now.”
Whereas ministers have been fast to assert the advantages of having the ability to reform exterior the EU, Austin is obvious that the majority of those adjustments might have occurred no matter Brexit. In some instances, reforms have been wanted merely to meet up with regimes in cities akin to Amsterdam.
“The air is in peril of going out of London. It was by no means going to be a cliff edge after Brexit. If we’re not cautious, we are going to return to being a regional monetary centre. I feel we ought to be extra formidable than that.”
Final Tuesday, the Treasury printed the outcomes of a evaluate of the fundraising market by the Freshfields’ lawyer, which recommends reforms to the pre-emption rights regime to permit more cash to be raised shortly, and to scale back regulatory oversight of fundraisings.
It’s hoped the reforms will make the UK’s capital markets extra enticing for fast-growing and capital-hungry corporations, and so they have obtained assist from fund managers akin to Abrdn, BlackRock, Hargreaves Lansdown and Jupiter.
Austin says the London itemizing regime has been overburdened by further necessities and rules, and “gold plating” of fundamental guidelines. He argues that there are vested pursuits and a “groupthink” mentality that assist the established order of the UK capital markets. “Simply because that is the way in which we do it now doesn’t imply we must always maintain it going ahead — you’ve received to maintain London related.”
Cities akin to Paris, Frankfurt and Amsterdam “don’t have any of this baggage”, he added. “London must get up proper now. And begin to actually motor when it comes to significant, wise, daring and courageous reform.”
Corporations are nonetheless deterred by excessive taxes and company governance that limits remuneration for high executives, he mentioned. “You may’t reward individuals in the way in which you may in different jurisdictions. My fear is that we’re making it too unattractive for corporations to be public right here.”
Austin added that proposed adjustments to company governance guidelines in forthcoming laws would add additional burdens on corporations seeking to checklist within the UK, and predicted that extra public corporations can be taken non-public, the place guidelines have been looser.
He mentioned that investor attitudes additionally wanted to alter round backing promising progress corporations, relatively than merely looking for earnings via dividend-paying shares.