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Can the UK government save the London Stock Exchange? | Bonds & Ballots
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Oct 7, 2024
In this episode of Bonds & Ballots, City A.M.'s chief city reporter Charlie Conchie looks into some of the troubles facing the London Stock Exchange and asks corporate partner at Latham Watkins Mark Austin and partner, head of financial institutions group at Hogan Lovells Rachel Kent how the UK government can tackle the challenges with the public markets. City A.M.’s new Bonds & Ballots series unpicks the ties between Westminster and the City and gets to the heart of the issues shaping the debate on business ahead of the election. Every Friday, join us as we sit down with the key decision makers in both government and the Square Mile as both Labour and the Conservative party lay out their plans to revive UK business. Get more of City A.M. ? ? http://www.cityam.com X(formerly Twitter): http://twitter.com/CityAM Facebook: http://www.facebook.com/cityam Instagram: http://www.instagram.com/city_am LinkedIn: http://www.linkedin.com/company/cityam
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0:00
In the 17th century in this building behind me here, down a dark alley in the city of London
0:06
stockbrokers banished from the Royal Exchange would gather, have a drink and trade shares
0:11
according to a crudely drawn up list of prices on a board in the corner
0:16
Jonathan's coffee house, as it was known then, was the forerunner, the basis of what then
0:20
became the London Stock Exchange, as we know it today. It's a tale, I suppose, of how an exchange can develop, innovate and move with the times
0:27
and it is perhaps a slightly reassuring one for the bosses of the London Stock Exchange and also the government as they grapple with some of the troubles facing the public markets this year
0:37
I'm Charlie Conchie Chief City Reporter at Cityam with another episode of Bonds and Ballets where we look at some of the challenges facing the London Stock Exchange and asking the question, how can government help tackle them
0:49
To do that, we're going to be speaking with two of the key figures appointed by government to lead the reform efforts
0:54
Mark Austin, a lawyer at Latham and Watkins, and a mastermind of some of those reviews
1:00
that have been conducted over the past three years, and Rachel Kent, a lawyer at Hogan Lovells
1:04
who led a deep dive into the investment reset landscape last year
1:09
Let's go speak to them to hear what they have to say. We spoke with the city minister, Bimaf Alami, last week
1:19
and he obviously made it clear that capital markets reform was going to be a sort of key pitch from the government
1:23
towards the city. How much is actually within the government's power now to push ahead with those reforms
1:29
Are we waiting on them to push through certain pieces of legislation? No, I think actually the government have largely played their part now
1:35
I think it's mostly down to the market. I mean, the government and Treasury have reacted with a lack of vision on this in the past few years
1:42
as has the regulator, as has the FCA. And we've seen, though, the Edinburgh reforms, Mansion House Compact
1:49
the Financial Services and New Financial Services and Markets Act. And actually where we are now, the stage in the journey we're at now
1:54
is I think that by halfway through this year, more or less, we will be at a point where we will have addressed most of those key friction points
2:01
But it's really now, in terms of the final implementation stages, down to the market to do that
2:06
There is some work the regulator still needs to do. And so it's consultation paper that came out just before Christmas
2:12
We need to make sure that that lands in the right place and addresses the listing regime changes that we need to happen
2:18
But beyond that, for government, really, it's about continuing the positive narrative that they are putting on the weight
2:24
and the momentum they're putting behind it. They've actually done most of the changes they need to do. So it's championing being a PR man almost for the city on the global days
2:31
making the case to firm. It is, because I keep saying, actually, a lot of this now is coming down to us making sure
2:36
that we talk about the positive narrative and we make people realize what we've done in the last three and a half, four years, because a lot of people, quite understandably
2:44
so I say, well, this bit's happening over there, that bit's happening over here, this is on that timeline, this is on that time, how does it all fit together
2:50
And so actually, the exercise in H1, 24, is actually bringing it all together
2:54
explaining to people powerfully and simply and cogently and positively importantly what we done and why we are now are about to be match fit as a market again I was just going to pick up on match fits and one of your favourite phrases One of my favourite phrases One of BIMS now new favourite phrases as well Are we actually going to see you know the public markets return to some sort of popularity
3:14
for companies this year? Is it going to become an appealing place to lift again, do you think
3:20
I mean, based on conversations that we're having with issuers and potential issuers and investors
3:25
I do think so. I mean, when you actually talk to them in positive terms about what we've done
3:28
and why they need to take another look at the UK markets, you get a very positive response
3:33
as we're having lots of interesting conversations. And based on certainly the activity since Christmas
3:38
since start of January, everything looks positive. I mean, I think it's not guaranteeing that it's all going to come
3:44
but I tend to also say that you can only play the ball, you're bold. And you have to believe that if we take the various friction points
3:50
that have built up in our markets out of the equation, you have to believe, a bit like Kevin Costner in Field of Dreams
3:55
that if you build it, they will come. And I think the sounds are good. Yeah. And I mean, you know, we're in a fairly tumultuous year coming up to an election
4:02
Are you concerned that these reform efforts, some of the PR campaign we've talked about there
4:08
may be blown off course slightly? Do you think the Westminster goings on could dampen the appeal of the city as a place to come to list
4:15
I don't think so. I mean, I think, you know, obviously the government has been fantastic in interacting on all this
4:20
and getting, putting its shoulders at the wheel and backing it all. Labor as well
4:24
I mean, a lot of people have been talking to Labour about that. We very much get the sense that this has been, this is seen as a non-political point
4:30
I mean, I think we all recognise that the financial services sector is a jewel in our crown in this country
4:35
and we need to do everything we can to keep the competitive on the world stage. And these are all steps that are being taken to make sure that that competitiveness is not just maintained but is advanced
4:43
So I think it's a, I think it's fairly safe that people are fairly safe in their assumption that whatever happens with the electoral cycle this year
4:51
the reform journey won't get interrupted, no. In terms of sort of your to-do list for the year from Westminster, perhaps some regulators as well
4:57
what would be the crucial things there you'd like to see in terms of reform? So I think this year it's about landing the FCA reforms
5:04
which the FCA put out just before Christmas, making sure they land in the right place, getting the prospectus regime amended
5:09
which the FCA will consult on in the second half of this year, but I think we know where that's going
5:14
And then I think it's really about probably giving a bit more thought to capital deployment, actually
5:18
We do need to still think about how we can drive more money back into UK equities because there's no capital market without capital
5:24
That's true, and there is a lot of thinking going on on that, as we know. And then it's fine about talking about a positive narrative, actually
5:30
It's actually just talking positively about what we've done, not letting ourselves be too British and a bit eorish about our strengths as a financial centre
5:39
and being positive about it, having an insurgent mindset, having a bit of hustle about ourselves and a bit of entrepreneurialism on the global stage
5:46
And I do think also there is an opportunity, real opportunity for us, to try to drive retail investors back into the market
5:51
I mean, Bim talked about the NatWest share sale. Jeremy talked about that in the autumn statement
5:56
done artfully and thoughtfully, you know, tell Sid in the age of social media
6:00
should be tell Sid on steroids. And, you know, you use social media
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you use the advent of retail platforms as well. We could create a very powerful platform
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to encourage people back into the stock market, I think and educate them about it Certainly a lot to do for the year ahead But Mark thank you very much for joining Happy having you So that was Mark Austin there giving his perspective on the pace of reform in the city and the speed of which government has moved that
6:24
and pushing that agenda forward. We're going to now go back to City M Studios
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and dig into one of the key aspects of reform, investment research, which in effect
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acts as a shop window for companies on the London Stock Exchange
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We're going to be speaking with Rachel Kent, a Hogan-Lubbles lawyer, who led a big review
6:41
of the investment research landscape and get her thoughts on what more needs to be done in the year ahead
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Let's go and hear what she has to say. Progress and how these reforms and reviews are progressing
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how they've been taken forward. With your own review, first of all, are you pleased with how it's progressed
6:57
There are a few recommendations still hanging out there yet to be taken on. What more would you like to be seen done on sort of taking those reforms forward
7:05
It's difficult for me to say that in terms of the recommendations in my own report
7:10
that I'd like to see anything else on one level, because the government immediately after publications said that they intended to implement all of the recommendations
7:20
and the Chancellor repeated that in his autumn statement. So I can't fault that at all
7:26
I said to you last time when we spoke that I am an impatient person. So I'm impatient to see the result of this, not only because I'm an impatient person
7:36
but because I believe this is urgent. And can turn yours around in three months as well. Exactly
7:40
It only took me three months. the problem. No, so to be serious, though, these things, it's all very well to say
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here's my idea, to actually work out exactly how it's going to be done, how it's going to be
7:54
funded, is of course a challenge. And I also said to you when we spoke that actually, I think
7:59
the government is going as fast as any government that I've seen on these issues. I speak
8:06
for the implementation of the reforms generally. It's not only at the door of the government, though
8:13
in terms of reversing the MIFID II changes to make it easier to pass the research costs on
8:19
to end investors in the way that they were passed on prior to MIFID II, that requires regulators
8:28
To be fair to the FCA, they also undertook to fast-track, so there's an accelerated programme in play
8:35
for the implementation of the, if you like, the post-MIFID II changes on investment research costs
8:44
They've undertaken to implement those changes by, I think it's the end, but by the first half of 2024
8:52
So we have another five-monthish to go. I think that they are doing what they can
8:58
They're naturally cautious. They need to get it right. If I have a frustration there, and I hope my clients and contact
9:05
that will forgive me for saying this, but what I don't want us to do is sit back and wait
9:11
until the FCA tell us what the new regulations are going to be. That's what we did last time and that caused us problems
9:18
It's not that you can't pass costs on to your clients at the moment
9:22
it that the regulations that sit around that are just too difficult so nobody does it So it really important that this time we get it right first time or this time
9:33
And that requires serious engagement on some really tricky issues. And I'm really lucky that the industry, I can't say enough how pleased I am
9:46
how well the industry came together to put forward its proposals. So I guess my point is we can't take our foot off that pedal
9:54
We have to keep asking the FCA what they're thinking is, understanding their thinking and refining their thinking if we think it doesn't work
10:03
Just finally, you know this process, the market as well as anyone
10:07
Are you personally, are you positive about this year? Do you think we are going to see something like turning a corner in the next few months
10:15
I hope so. And the reason for that is when I started
10:21
and people will have heard me say this, but when I started my review
10:25
I was extremely worried that I would find we don't have the innovation at the bottom
10:31
We don't have those small companies. I was very used to the fintech market, as I mentioned
10:36
and I knew it was there, but I didn't know much about the rest of the market
10:41
I couldn't have been more wrong. That's absolutely not the case. We've got amazing innovation
10:47
The bottom end, so to speak, all of the new companies coming through, great innovation
10:54
So we have the opportunity to invest. We have the opportunity to grow those small companies
11:01
into much bigger companies that have amazing businesses. And as you know, what excites me about that
11:06
is the prospects for jobs across the UK. That is why this is important to me
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So I absolutely think we have the fundamentals there. We have the capacity
11:16
We have great research providers, for example, and we have amazing mid and small cap managers who understand this market
11:23
We have the money to invest. We have the opportunity to invest and we have the evidence from other jurisdictions
11:30
that that investment is beneficial to those investors. So our pension schemes and our retail investments will grow
11:40
So I think all the core fundamentals there, it needs, I'm going to say nudging along
11:46
That's what it needs. nudging along. So we are lucky that we had in the previous EST
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and in this EST, somebody is absolutely committed to understanding what needs to be done
11:58
and I believe they are doing their best to nudge it along in the right direction
12:05
So I'm hopeful. A positive view for the year ahead, probably in short supply of them at the moment slightly
12:12
But Rachel, thank you very much joining us on bonds and ballots. Thank you
12:16
Well, there you have it, two quite different. different perspectives there on what role the government should be playing in tackling some of the issues facing the London Stock Exchange and the wider public markets. Do you agree? Should the government be doing more to champion the London Stock Exchange on the world stage and push through some of those reforms? Let us know in the comments below and click here to subscribe
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