FCA proposes reforms to the availability of information in the UK equity IPO process

The IPO process plays a vital role in helping companies raise capital in UK markets. The FCA’s April 2016 Discussion Paper on this topic reported some areas of the process that need improving, namely the timing, sequencing and quality of information being provided to market participants.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:

“A well-functioning IPO market with high standards of conduct is an essential part of the UK’s capital markets. The IPO process has considerable strengths, but the proposals we have outlined in today’s Consultation Paper are designed to improve the range, and timeliness of higher quality information that is available to investors during the process.”

The Consultation Paper proposes a package of policy measures intended to improve the range and quality of information available to investors during the IPO process.

Currently, the prospectus, which should be the primary source of information on companies seeking to raise finance through the IPO process, is made available very late in the process.

The FCA also found that analysts within non-syndicate banks and independent research providers generally lack access to the information they need to produce research on IPOs.

As a result, so-called ‘connected research’ written by analysts within the book-running syndicate is the dominant source of information available to investors during a crucial stage of the process. This is of particular concern given the conflicts of interest that arise during the production of connected research, including analysts coming under pressure to produce favourable research on an offering if their bank is to secure a place on the book-running syndicate.

The Consultation Paper includes a series of rules which seek to ensure that a prospectus or registration document is published, and providers of ‘unconnected research’ have access to the issuer’s management, before any connected research is released. The package also includes new guidance clarifying the FCA’s expectations on analysts’ interactions with the issuer’s management and their corporate finance advisers when considering the IPO mandate and a bank’s syndicate positioning.

Ultimately, the FCA wants to see an IPO process:

• with enhanced standards of conduct during the production and distribution of connected research;
• where a prospectus document plays a more central role; and
• where the necessary conditions exist for the emergence of unconnected IPO research.

This consultation is related to a wider programme of work that is designed to increase the efficiency and effectiveness of primary markets. On 14 February 2017, the FCA published a Discussion Paper on UK primary markets landscape and a Consultation Paper on technical enhancements to the Listing Rules.

Notes to editors

1. Consultation Paper: Reforming the availability of information in the UK equity IPO process[1]
2. Discussion Paper: Availability of information in the UK equity IPO process[2]
3. In October 2016, the FCA published its Investment and Corporate Banking Market Study[3] final report. This Consultation Paper is one part of the remedies arising from that market study. We are continuing to work on the other remedies, which include working with BBA/AFME to improve presentation of league tables, supervisory work to improve IPO allocation policies and practices and new rules to prohibit restrictive contractual clauses.
4. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
6. Find out more information about the FCA[4].