The challenge ahead
In creating a bridge across the crisis, government, central bank and regulators have tended to focus on credit. The government providing loans to those firms who need it; the Bank of England reducing the Bank Rate to near zero; and the FCA providing forbearance to those consumer borrowers financially affected by the economic impact of the pandemic and the measures taken to control it.
These measures were entirely necessary. But, as ever, turning off the tap – and where necessary mopping up – will be the greater challenge.
These interventions have given companies and consumers a fighting chance of weathering an unprecedented economic, social and health storm. But more debt does not, and cannot, provide a sustainable foundation for rebuilding. For corporates, robust health requires equity.
The scale of that need was highlighted in the recent The City UK report on recapitalisation, which estimated £100bn of investment would be necessary. We can debate whether that is the right number or not, but we know it will be big.
Helping address this need is the market’s fundamental purpose.
Listed UK companies have made good use of their access to the UK’s public capital markets over the past few months. Investors – your members primarily among them – have proved willing to supply. For example, UK companies listed on the LSE’s main market and AIM raised £14.7 billion in equity between April and June this year. That’s almost double (194%) the amount in the same period last year.
To continue to support the vital work of recapitalisation, we want to understand whether there are some types of issuers that are unlikely to be served by public or private markets over the period of crisis into recovery. And, if there are, whether we have a framework that accommodates a wide range of issuers and those investors able to understand and bear the inherent risks involved.
Our objective in this discussion is simple. And it is a constant. We want rules that balance and meet the needs of both issuers and investors. This is vital. High standards, properly monitored, and if necessary enforced, give investors the confidence to invest.
At the heart of these requirements are fundamental protections for investors. Without them markets would not work. But that does not mean that we cannot ask how the rules should be calibrated. There is a question about whether some elements of the framework inhibit rather than promote opportunities for issuers and investors.
For instance, issuers whose securities are traded every day must, rightly, meet continuous disclosure requirements. These are fundamental to preventing market abuse and supporting investor confidence in traded prices.
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