Insights
Balancing Regulation and Growth in Capital Markets
The Financial Conduct Authority (FCA) recently released its new five year strategy. A key focus is economic growth, aligning with the UK Government’s fiscal agenda. In a recent speech, the FCA’s Director of Market Oversight, Dominic Holland, outlined how the regulator aims to drive the growth of UK capital markets, while balancing it with risk management. In this article, we’ll explore how the FCA plans to ‘bridge the gap’ between themselves and market participants by fuelling growth through collaboration, embracing technology and reducing the regulatory burden on firms.
Collaboration
The FCA cannot be expected to deliver on their goals in isolation without the support of market participants. While they can reduce the regulatory burden (more on that below), there is also an onus on firms to push for innovation themselves and to communicate with the regulator as a habit, in an open, constructive way rather than in a negative capacity.
Primarily, the regulator exists to maintain regulatory oversight and take enforcement action where necessary, to ensure clean markets and subsequently investor confidence. However, the FCA can also be a facilitator of growth by supporting firms to thrive, such as aiding firms in accessing diverse sources of finance.
The main message is clear: the FCA should be seen as a partner, not as a policeman. Firms should reach out, even if the regulator is not the most obvious point of contact.
Reducing the Reporting Burden
Streamlining obligations to the regulator is another point on the agenda. Reporting can quickly become complex and costly across regimes, as firms navigate inconsistencies and overlaps. However, they cannot be neglected as some regimes are of course essential. For example, transaction reporting is used to detect market abuse and the European Market Infrastructure Regulation (EMIR) data for monitoring system risk.
Touching again on the note of collaboration, the FCA invites firms to engage with the regulator to identify where simplification may be possible, stressing that effective, proportionate reporting contributes to market confidence, liquidity and economic growth. Participation in upcoming FCA consultations will help to shape smarter reporting frameworks that balance risk and economic growth.
Fuelling Growth
The FCA aims to fuel economic growth by reforming capital markets and access to financing options. This starts with consultations aimed at minimising admissions to regulated markets and primary multilateral trading facilities (MTFs) as well as introducing a framework for a public offer platform.
Making it easier for firms to raise capital will come through further issuances, aligning disclosure rules for corporate bonds and reducing barriers that restrict retail access to corporate bonds to unlock new investment avenues.
Embracing Technology and Innovation
Financial services can be transformed through digitisation, with rising developments in artificial intelligence and tokenisation, for example. Similarly to the points above, the FCA wants to hold an open dialogue with market participants to harness efficiency, reduced costs and improved liquidity.
Cryptoasset regulation is a key area of focus as the treasury brings certain crypto activities within the FCA’s remit. The stress here is a balanced regime that supports innovation while ensuring market integrity and consumer protection.
The upcoming transition to T+1 settlement is set for October 2027, aligning the UK with global counterparts making the move on the same date. It is aimed at improving market efficiency and reducing counterparty risk. Notably, innovation is welcome but must be paired with robust oversight to ensure safe and efficient markets.
The Objectivus View
Balancing regulation and economic growth will come through innovation, if implemented responsibly and in a well-regulated manner. Faster settlement cycles and the expansion of cryptoasset regulation should signal a change in how capital markets operate. At Objectivus, we help our clients navigate regulatory change, keeping governance and compliance frameworks robust and future-proof. Firms must act to stay ahead of change. Innovation and compliance can come hand in hand when carefully considered.
For further information please contact Dan Harasemchuk rdh@objectivus.com or Bhavisha Patel bp@objectivus.com
or +44 (0)2034 573 283