“Proportionate capital markets reform” is the way forward asserted Sarah Pritchard, executive director, markets and international at the UK’s Financial Conduct Authority (FCA) at the ‘City Week’ event yesterday, 20 May.
The overarching theme of the director’s speech was a call for a decidedly collaborative and “calm” approach to market reforms, wherein market participants and regulators (namely the FCA) continue a symbiotic relationship to foster a proportional approach to regulating the ever-evolving market.
In order to avoid unintended consequences “or worse, taking a hammer to crack a nut,” as Pritchard put it, market input is paramount as the watchdog looks to future-proof its rules and create a cohesive reform agenda.
The speech directly addressed the recent research payment rules, which followed the Investment Research Review, chaired by Rachel Kent, supporting greater optionality around how firms can pay for research.
Specifically, the FCA confirmed last month that its proposed reforms will look to give asset managers greater flexibility on how they buy research.
Speaking to the process which led to the decision, Pritchard explained: “We know that one size doesn’t always fit all – which is why we have acted quickly […] This greater choice should suit firms of varying business models and sizes, helping to promote competition. It will allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager’s own resources or from a dedicated account.”
The ease of cross-border activity is due to the proposed new plans being compatible with rules governing research payments in certain other major jurisdictions, said the watchdog at the time.
In this vein, the speech also touched on the importance of consistent standards across jurisdictions as the impact of volatility and turbulent geopolitics continue to affect the pursuit for healthy and efficient capital markets.
“We live in sometimes staggering times of technological change, changing demographics and international marketplaces […] There are often differing regimes in place internationally but as the world economy and financial markets are ever more global, we are leading the way in key areas where international cohesion is most important,” asserted Pritchard.
She also confirmed that the FCA continues to foster close relationships with international partners on market risk, explaining that despite differing viewpoints, engaging and testing across the market is vital.
“While the economic and financial weather may not always be calm and sunny, we need to make sure that our rules work and can adapt for all types of challenges and can cope with some serious buffeting, at the worst of times.”
Elsewhere in the speech, the FCA’s digital securities sandbox initiative, which celebrates its tenth birthday this year, was discussed. Pritchard took time to share some specific wins that firms entering the regulatory sandbox had seen in recent times.
Read more: Bank of England and FCA to launch joint Digital Securities Sandbox
Sandbox firms saw a 15% increase in capital raised, and these entities have also been found to be 50% more likely to raise capital than peers. In addition, Pritchard confirmed that the model has been replicated by over 95 international regulators to date.
When it came to future plans, the speech made clear the FCA’s focus on ‘future-focused regulation,’ specifically for insurgent themes such as AI.
“We will not be regulating for regulation’s sake and will be guided by our outcomes-driven approach. But we must provide certainty and encourage the safe adoption of AI in UK finance markets, so we must also look at digital infrastructure, resilience, consumer safety and data,” said Pritchard.