Giving investors a choice
The FCA is seeking to implement the new Consumer Duty, setting higher expectations for firms and standards of care towards customers. As an industry, regulators, and Government, we have a collective duty to ensure we equip consumers with the same balanced tools for investment as institutional investors enjoy, supporting their long-term savings and retirement plans.
UK investors and market participants have a culture of equity ownership, making it easier to buy, hold and invest in equities rather than to gain access to the biggest capital market in the world: fixed Income.
As we develop new frameworks in UK financial regulation post Brexit, we need to collectively recognise the need for change, to create flexible and dynamic ways for issuers and distributors to list debt products, with smaller denominations to enable retail investor access, while protecting the validity and purpose of the wholesale markets and consumer duty.
The Treasury’s UK Prospectus Regime Review consultation paper highlighted that the FCA and others have previously argued the wholesale threshold of €100,000 denomination potentially distorts debt capital markets and should be reviewed.
An inclusive Debt Market for the future
No industry has been left untouched by the pandemic. For financial services, the crisis has had profound implications; the number and impact of retail investors have increased dramatically – changing the dynamics of the investment world.
According to the ONS, the proportion of UK shares held by UK-resident individuals rose to 13.5%, up by 1.2 percentage points from 2016, moving further away from the historical low of 10.2% in 2008.This will no doubt have increased though innovation in trading platforms and the resulting surge in retail account openings since early 2020. Indeed, in 2020 The Financial Times estimated that 15% of the UK stock market was held by individual shareholders. (Source: ShareSoc).
During periods of rising rates, bonds have shown predictability of returns, and act a shield against stock market volatility. Since 1976, bonds have provided consistent diversification during equity downturns – the top 10 worst quarters for stocks saw positive performance for bonds. They have clear portfolio benefits for the UK’s savers and investors.
The UK has a love affair with equities, it is now time to champion the retail investor once more by giving them easy and transparent access to regulated premium grade debt markets – unlocking the potential for the investor to access single stock debt markets in the same way they can single stock equity markets and create diversified streams of funding for premium grade regulated issuers.
As HM Treasury appoint Mark Austin as an Independent Chair of the UK Secondary Capital Raising Review, focusing on reviewing the inclusion of retail investors into equity fundraising, we look forward to a similar focus on the balanced ownership of debt within the retail investor community.
After all, if retail investors can readily invest directly in an increasingly wide range of niche and esoteric asset classes, then why not a 1.625% London Stock Exchange Bond?
Now it is time to level the playing field for retail investors in debt markets.
