This week the FCA published its
final report into the investment and corporate banking market, which follows a study of the industry that began in 2015. The findings reveal that many banks have been misrepresenting league tables when pitching to clients. It also looks at how IPOs are processed and how they can be improved.
In a statement announcing the report, Christopher Woolard, the FCA’s Director of Strategy and Competition, said that while the universal banking model “works well” for a large number of participants, “areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could.”
Increasing credibilityThe FCA confirmed on Tuesday that it would stop banks from “misrepresenting” their performance when pitching to new clients, writes Huw Jones for
Reuters. Corporate and investment banks have been using industry league tables to “inflate their own position” against their rivals, according to the FCA’s report. Concerns were also raised about how some banks were carrying out “loss-making transactions purely to generate a higher position in such tables”.
Jones says that the FCA is looking to work alongside the British Bankers’ Association and the Association for Financial Markets in Europe (AFME) to “develop and adopt guidelines to improve how banks present such information to customers”.
Reuters article
Improving IPOsThe reforms to the way IPOs are placed are “likely to be given the closest reading in the City,” writes Jonathan Yarker in
Citywire. This is because of recent cancellations of IPOs, he says.
According to Yarker, the FCA “were particularly concerned about preferential access to pre-IPO information provided to clients able to drive large commission payments to book-running banks.” He says that the FCA is looking to open up this pre-IPO information “to make it easier for the wider market to attribute a value to businesses going public”. These proposals will be published either before the end of 2016 or early next year.
Citywire article
Technical challengeNew technology could help to “improve the transparency of the allocation process for IPOs, improve the efficiency of the bookbuilding process and provide access to retail investors,” writes Shanny Basar for
Markets Media.
Basar says that the FCA is looking at a range of technologies, including one being developed by UK start-up Issufy. The platform will “facilitate and enhance the IPO distribution process for institutional investors, advisory firms and corporates that are issuing stock”.
Basar adds that respondents to the report have given examples of innovations in the market that include ways of making the book-building process more efficient. He quotes from the report: “Respondents highlighted industry initiatives to digitalise and automate the bookbuilding process, led by FIX Trading Community – a non-profit, industry-driven standards body, as well as a technological solution developed by a start-up.”
Simon Lewis, Chief Executive of the AFME, is also quoted in the article as welcoming the FCA’s report into the banking market. He added that the AFME would also help with devising reforms to the IPO process.
Markets Media article
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