UK Financial Conduct Authority Aims to Make it Easier to Invest, Issue Bonds

The UK Financial Conduct Authority (FCA) is pursuing rules that aim to make it easier for listed companies to issue bonds and investors, including smaller ones, to invest in these assets.

The FCA explains that it would like to encourage listed firms to issue bonds at smaller sizes, which could make it easier and less expensive for firms to raise growth capital.

New public offer platforms could streamline the process of matching smaller firms with investors interested in debt securities.

‘We’re opening the door for corporates to issue bonds in small sizes so that a wider range of investors can invest in them. That’s more funding for companies, more easily, and more choice for investors too,” said Simon Walls, interim Executive Director of Markets at the FCA. “We want to make sure investors have the information they need to make informed decisions about risk while removing unnecessary costs and widening access.”

The FCA has kicked off a consultation on reducing costs and barriers for firms to issue bonds. The consultation is scheduled to close on March 14, 2025.

The FCA noted its pursuit of a private securities market, PISCES, which could be used to trade debt assets.

Michael Smith, Head of Debt Capital Markets at Winterflood, commented on the FCA’s bond proposal. Smith said it is essential any change gives issuers a choice. He noted that issuers factor in high denomination wholesale bonds, but there is an incentive to do so – something that is being removed.

Smith stated:

“If an issuer really wants to restrict retail access, it can, it will select a high denomination.  I anticipate this will be the case whilst advisors and issuers observe what their peers do.  But I look at the corporate bonds that have been issued over the last few years, and I just don’t see many that wealth managers and even individuals wouldn’t want to be restricted on.   Using credit ratings as a proxy for risk, bonds listed in the UK are predominantly investment grade.  Investment grade doesn’t mean risk-free, but if you’re going to expose retail to bonds, this is precisely where you start.   So, we are fully supportive of what the FCA is doing here.  Retail had access to bonds before 2005, so it’s not like we’re breaking new ground.”

Regulatory changes enacted around 20 years ago ended up impeding retail participation. Woodfield sees an opportunity for retail to tap the debt market, which currently is dominated by investment-grade offerings.

Smith said his firm prefers a single bond market open to all investors, preferably for a primary issuance but most certainly for secondary trading.

“We believe that these changes will drive market growth, efficiency and strengthen financial markets in the UK for the benefit of the investing community as a whole.”

Winterflood has published a White Paper on including retail in bond markets.

 



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