Bulb Collapse, Telecom Plus Results and FCA Globo Action

Yesterday energy supplier Bulb collapsed and was put into Special Administration. Bulb has 1.7 million customers and is the largest of 20 alternative energy suppliers to go bust recently. Most of their customers have been taken on by other suppliers but apparently nobody was willing to take on Bulb’s so effectively the company has been nationalised.

These companies have all been hit by the rapid rise in gas prices while the price cap imposed by Ofgem meant they could not raise their prices to their customers. Established suppliers such as Telecom Plus (TEP) consistently complained that the newer energy suppliers were building a customer base by selling at less than cost and the irrational price cap proved to be their undoing. Forcing businesses to fix their customer prices when input prices are based on market whims is a recipe for financial disaster in any market.

Coincidentally Telecom Plus, which I hold, published their half-year results this morning. They are a likely beneficiary from suppliers disappearing from the market. They reported “Net customer growth in October of over 15,000 and they are expecting around 10% growth in customer base during H2 with double-digit annual percentage growth thereafter”. There is always someone who benefits from financial disasters.

They also made these comments: “Over twenty energy companies have ceased trading since the summer, leaving over two million customers dependent on the safety net provided by the market regulator, Ofgem, to maintain their supplies and protect their credit balances through the Supplier of Last Resort (SOLR) mechanism.  These corporate failures take the total number of suppliers that have exited the market in the past five years to over 50, with further failures expected over the coming months.

Whilst primarily blamed on rising wholesale prices, this catalogue of failures, and the associated billions of pounds of costs that will ultimately be borne by consumers, reflect a regulatory regime that encouraged a clearly unsustainable ‘race-to-the-bottom’ approach to competition.  The resultant price war has eroded consumer trust and caused significant financial detriment, as the cost of these failures will need to be recouped through higher energy bills over the coming years.

Ofgem’s recent open letter to energy suppliers is therefore a welcome statement of intent to reform the regulatory framework towards one that genuinely fosters sustainability, investment, good service and fair competition amongst properly resourced and differentiated suppliers.

It is clear that the retail energy market has undergone a paradigm shift, bringing an end to the unsustainable practices which had become widespread over the last seven years of selling energy below cost to attract new customers, using customer credit balances as working capital, and failing to accrue for regulated renewable obligation payments.

In that environment, it stands to reason that an established, well-capitalised energy supplier benefiting from a sustainable cost advantage that is derived from bringing consumers a highly differentiated ‘all your home services in one’ proposition, should thrive.   As the dust settles on the prolonged energy market price war, we believe we are better positioned than ever to grow our market share significantly over the coming months and years”.

Other news today is a report in the Financial Times that the FCA have filed an action in the High Court against the former CEO and CFO of Globo (GBO). That company collapsed in 2015 after the accounts were shown to be a complete work of fiction with the claimed cash on the balance sheet non-existent and revenue also fictitious. It was a similar case to the more recent one of Patisserie Valerie also audited by Grant Thornton. The FRC declined to take action over the audit of Globo but it is good to hear that after so many years the FCA is finally taking some action.

As a former shareholder in Globo I have an interest in this matter and did provide some information to the FCA but there has been no contact from them since 2019. I am trying to find out more about the nature of the legal action now pursued (there is nothing on the FCA web site).  

Globo well demonstrates the weakness of UK audits, the poor enforcement by the FRC and FCA, the lack of transparency over what they are doing and the length of time it takes for those bodies to take action.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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COP26, Regulatory Arbitrage and Greenwashing

COP26 finished last week and many readers may have lost interest in the issues it discussed long before it closed. There is just so much one can take from the scaremongers of global warming when most of us have more immediate concerns about health and wealth. But there was one announcement by Chancellor Rishi Sunak that could be seriously damaging to your wealth in the next few years.

This was his announcement that the UK will be the world’s first net zero financial centre. This will not just be political gestures but he is proposing the following to quote from his Treasury statement: “Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050”.

“To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups”.

In other words, this will not be another “greenwashing” exercise but impose specific obligations on companies. The fact that meeting net zero carbon is an impossible task for many companies in any realistic timescale it seems is likely to be ignored. Even attempting to meet that target will impose enormous costs on companies even those who are not big generators of carbon emissions. If you extend it to Scope 3 emissions (those include all indirect emissions that occur in a company’s value chain) then the reach will affect all sectors of the economy.

This will certainly put the UK in the lead in the attempt to restrict global warming whether you believe it is practical or not. But if such regulations are introduced in the UK one can imagine exactly what will happen as it seems unlikely that other major economies will follow that lead. China, the USA, Russia and India are very unlikely to impose such draconian measures. As many UK listed companies have an international focus they have no great need to be listed in the UK. They could just as easily be listed in the USA or other countries with more friendly or easy-going regulatory frameworks.

You might think this is just an attack on oil/gas and mining companies but it will have a much wider impact in reality. For example, one of the big consumers of oil are ships transporting goods around the world so anyone importing products for sale, such as retailers, would need to persuade the shipping companies to avoid using oil.

One thing is certain. Companies such as BP and Shell may simply consider that it is easier to move their listing to another jurisdiction or accept a bid from a private equity player who does not have concerns about their environmental credentials.

This is what Jeremy Warner had to say in the Daily Telegraph: “However much we might wish it otherwise, oil and gas will long remain our primary source of life enhancing energy. And yet the industry is being driven underground by politicians and regulators too cowed to stand up to the hysteria of the climate change activists. The enemy within is almost as bad as the holier than thou pressures from without; oil company boards, together with those of their bankers, are these days stacked with well meaning do-gooders more focused on bowing to the campaigners than the demands of shareholder value”. If you are a shareholder in BP or Shell (I am not) you may sympathise with such comments.

Such moves of listing may already be evident from the decision of BHP to move to a single listing in Australia rather than the dual listing at present.

Unfortunately with such companies being the bedrock of the dividend paying FTSE-100 companies there are few alternatives for some investors such as big pension funds to choose.

Personally I have been investing in alternative energy generating companies and battery companies because the latest announcements from the Government tell me that the hysteria over achieving net zero is now so widespread that it will have a big impact on the financial world. In addition the Government plans to spend many billions of pounds in financing green initiatives and not just in the UK. We have already contributed £2.5 billion as the biggest donor to Climate Investment Funds. Such funding imposes a heavy burden of taxation which will add to the above woes of companies domiciled in the UK.

The irrationality of the general public over climate change in the UK has no bounds. For the last 30 years the young have been taught in schools an extreme agenda which has also been promoted by the national media, particularly the BBC, and politicians are now pandering to the mood of the public. This scenario is going to make the UK a poor location for investment funds in comparison with other countries. Private investors should surely rebalance their portfolios to have less emphasis on the UK. At least that is the case while the mania continues.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Open Letter re New FCA Chairman

An open letter to Rishi Sunak, Chancellor, has been created by the Transparency Task Force concerning the appointment of a new Chairman of the Financial Conduct Authority (FCA). That body has clearly been ineffective in recent years in protecting retail investors from fraud and scams. The letter calls on any new appointment to be not another City insider but someone with true independence.

You can read the letter here: https://www.transparencytaskforce.org/wp-content/uploads/2021/11/Open-Letter-regarding-regarding-replacement-to-the-Chair-of-the-FCA-3.pdf

I ask you to support the letter by adding your name to it as I have done. Just send an email to the contact person at the foot of the letter confirming your support.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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ShareSoc Woodford Legal Claim Seminar

There are several legal firms who are mounting cases to try and gain some redress for the investors but ShareSoc is backing Leigh Day who presented at the seminar. They are focussed on a claim against Link Fund Solutions, the Authorised Corporate Director (ACD) for the fund and which is part of a large financial group (Link).  Leigh Day’s investigations lead it to believe that Link allowed WEIF to hold excessive levels of illiquid or difficult-to-sell investments, and that this caused investors significant loss. In doing so, they consider Link breached the rules of the FCA Handbook and failed to properly carry out the management function of the Woodford Equity Income Fund. They have already issued a letter before action and received a rebuttal response from Link so have now filed a case in the High Court, i.e. the case is progressing – see https://woodfordpayback.co.uk/ for more details and how to join the claim.

A representative of Leigh Day presented the facts and the basis for their claim against Link, but as usual when lawyers present cases, this might not have been exactly clear for the average person. Lawyers seem to want to display their intelligence and knowledge in such presentations which might impress corporate clients but is inappropriate for the general public. Those who invested in the Woodford fund might not have been the most financially sophisticated individuals with many of them relying on recommendations from brokers such as Hargreaves Lansdown (HL).

It seems that Leigh Day cannot identify a good case against Neil Woodford himself, against his management company or against HL. This is unfortunate. Link and the FCA might have fallen down on the job of regulating WEIF and monitoring what Neil Woodford was doing but in essence it was his actions that eventually brought about the collapse. Not only did he invest in companies that were inappropriate for an “equity income” fund but many of them were high risk. Liquidity evaporated when fund performance was poor and negative publicity hit the fund at which point everyone wanted out.

The Leigh Day claim is certainly worth supporting in my view but they have only managed to sign up about 11,000 claimants so far. Why is that? No doubt the first problem is that they do not have access to a register of investors. Both Link and HL have rebutted such requests which is morally indefensible. The FCA should surely step in to ensure that happens if the required information cannot be obtained using the normal disclosure responsibility in legal cases.

Indeed the FCA could take much tougher action by enforcing compensation if they had a mind to do so, but as usual they are proving toothless.

One point I was not aware of before that came out in the meeting was that Grant Thornton were the auditors of the WEIF fund and should surely have queried the low liquidity. Another black mark against that firm.

Apart from the problem for Leigh Day getting through to investors there are a number of other difficulties in obtaining supporters for such legal actions. These are: 1) Investors are often elderly and suffer from sloth – repeated reminders are necessary to get them on board; 2) Investors are keen to forget their own mistakes in investing in the fund; 3) The time to likely obtain a judgement which is several years puts people off; 4) The legal case appears complex and the contracts between investors and the lawyers can be complicated – investors might also doubt that they are not facing risks of costs. The way the case is communicated to investors needs to be handled very carefully to ensure investors understand what is being done and why they do not face risks from the legal action.

Another issue is that ShareSoc and Leigh Day have pointed out that another approach might be to complain to the Financial Ombudsman. From my experience of that organisation, it would be a long and tedious process with little certainty of satisfaction. I would personally prefer to rely on an aggressive law firm to obtain some redress.

Leigh Day certainly seem to have acted competently so far in pursuing their legal action and have moved relatively quickly. I would also encourage you to write to your Member of Parliament to request that the Government ensures that the FCA (Financial Conduct Authority) takes much stronger action over these events.  

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Roger Lawson

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Scrapping Share Certificates and Clive Sinclair Obituary

The Government is to push ahead with the scrapping of paper share certificates. An announcement yesterday by Lord Frost included this in a bonfire of regulations which also included plans to scrap driving licences (i.e. making them digital only). The dematerialisation of shares was long ago committed to by an EU directive with no new paper certificates to be issued by 2023 and all existing ones replaced by 2025.

There are many share certificates still held by investors – for example I still hold a few, mainly for VCT companies which I have never bothered to dematerialise. A paper share certificate at least ensures you are on the share register of a company and hence are a “member” with full shareholder rights. A replacement system which ensures you retain those rights rather than shares being held in a stockbroker’s nominee system is required but plans for implementation of such a system have been slow in appearing.

See https://www.gov.uk/government/publications/brexit-opportunities-regulatory-reforms for the announcement.

Inventor and businessman Sir Clive Sinclair has died at the age of 81. He developed early calculators, digital watches and the ZX81 and Spectrum personal computers. The latter were the first popular home computers in the UK sold at a price almost everyone could afford (less than £100). I fondly remember playing video games on a Spectrum but they were not much use for anything else. The keyboard was a single sheet of rubber and not fit for much at all.

Despite these short-lived commercial impacts, he never developed these businesses into long-term successes and even proceeded to destroy his reputation with the Sinclair C5 electric vehicle.

He provided a very good example of how in Britain we have good technology innovators but not good businessmen who can develop a company and conquer the world with superior sales and marketing.

Sir Clive seemed to always want to move on to new inventions rather than concentrating on making money from existing ones and doing the boring work involved in developing existing products and markets. Therefore in essence a flawed personality in many ways.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Diversity – But at What Cost?

The Financial Conduct Authority (FCA) have published a public consultation on “Diversity and inclusion on company boards and executive committees”. This summer I seen to be spending a lot of my time responding to FCA consultations and this one seems to yet another that will impose costs on publicly listed companies with no clear benefit while diverting management time. As I pointed out in my response to the Primary Markets Effectiveness Review, the imposition of more corporate governance regulations is one reason why public listings are falling as company management decide that it’s easier to remain private. That is the negative outcome of over-regulation.

What’s the latest consultation proposing? They propose to change the Listing Rules so as to “require companies to disclose publicly in their annual financial report whether they meet specific board diversity targets relating to gender and ethnicity on a ‘comply or explain’ basis”.

They also propose that companies publish standardised data on the composition of their board and the senior levels of executive management by gender and ethnic background; and to encourage a broader consideration of diversity at board level, they are also proposing to amend the corporate governance rules to expand reporting requirements to wider diversity characteristics. This could include ethnicity, sexual orientation, disability and socio-economic background.

They may also “seek to widen the scope of the targets to levels below executive management”, i.e. This means not just the board and top management will be covered in future.

In the short term the rules will require:

  • At least 40% of the board should be women (including those self-identifying as women).
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) should be a woman (including those self-identifying as a woman).
  • At least one member of the board should be from a non-White ethnic minority background.

Although there is wide acceptance that more diversity on some boards may be preferable. By avoiding the all-white, male and elderly boards that were so common in the past, one can ensure more understanding of the modern world. And it is certainly the case that there may be some social justice in avoiding unfair discrimination against some characteristics. But is there any evidence that more diverse boards actually improve company performance?

The FCA report covers this issue in Section 3.27 onwards where they review the evidence. The evidence is not clear so they say: “Our own literature review of academic and other research published alongside our DP concludes that, overall, the empirical evidence for the impact of diverse workforces and boards on financial performance is inconclusive”. In essence the imposition of more regulation in this area may have no benefit while the disadvantages of loading management with extra responsibilities is ignored.

What concerns me most is that instead of picking the best candidates for board or senior management positions, they may be selected based on sex or ethnicity, i.e. there will be discrimination against others, which is of course illegal.

There is also a rather peculiar focus on factors that have no obvious relevance to fitness for a role. One of the oddities of public companies is that anyone with no qualifications or experience can be appointed. There is no requirement to have a business or accounting qualification. No requirement to know the basics of company law or to have had any training for the role of being a company director. Is this not most perverse?

For example I have attended several General Meetings of companies in the past where it was clear that the directors did not understand the basics of company law.

You also get peculiar results at present where the keenness to appoint more females results in some directors with little obvious qualifications for anything. They tend to end up chairing remuneration committees for example where they are dominated by executive management.

Would it not be preferable to regulate to ensure directors had basic competence in law and finance rather than happening to have the right skin colour? That is likely to be much more effective in improving company performance.

One of the most laughable aspects of the proposed new regime is that to meet the new rules on gender diversity all that needs to be done is for a current male member to “self-identify” as female. Will management be required to inquire into the details of sexual orientation when recruiting?

If we are going to start regulating management composition based on their characteristics, should we also not be ensuring a balance of ages, heights, physical fitness (no fatties allowed) or other relevant characteristics?

There are better alternatives to improving the diversity of boards other than using quotas. Education and structured experience programmes are more likely to produce a better outcome.

In summary I suggest this proposal is a complete nonsense and should be withdrawn. Readers should submit their own responses to the consultation to avoid responses being biased by the thoughts of those who wish to be politically correct.

You can see my detailed responses to the consultation questions here: https://www.roliscon.com/Diversity-Consultation-Response.pdf  

FCA Paper: Diversity and inclusion on company boards and executive committees. Consultation Paper CP21/24: https://www.fca.org.uk/publication/consultation/cp21-24.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Comments on Primary Markets Effectiveness Review

The Financial Conduct Authority (FCA) have launched a public consultation on potential changes to the regulations regarding the listing of companies on public exchanges (see link below). This is in response to concerns about the fall in the number of companies listing (the number listed is down by 40% since 2008). There is particular concern that the UK regime is tougher than other international markets and particularly deters certain types of companies from listing.

You only have to read the consultation document to understand how complex the rules on main market listing are and they are surely due for simplification. Over complex rules not just deter companies from listing but add to the costs of doing so and those costs fall on investors.

A survey by PWC in 2018 indicated that regulatory burdens and costs are the main reasons for not listing as opposed to raising finance by other means. A fall in the number of listed companies particularly affects private investors who want to invest directly in companies and wish to have a direct connection with where their money is invested.

Other factors are also involved such as the low cost of debt at present and the ability of private equity firms to act quickly and provide a less onerous corporate governance regime. But it would certainly be a retrograde step if public stock markets fell substantially in size.

Among the proposals to make listing more attractive in the UK are 1) allowing dual class structures where some shareholders can have disproportionate voting rights; and 2) relaxing free float levels required. But there is also a proposal to increase the minimum market capitalisation substantially from the present level, which surely would not help.

There are also proposals to alter the primary segment qualifications or remove segments altogether which I favour.

I support the relaxation of free float levels but am opposed to dual class structures. Dual class structures enable founders to retain control but that is not necessarily a good thing. In practice there are other ways that founders can retain substantial influence – for example by retaining significant shareholdings and board seats. I do not see that permitting dual class structures (DCSS) is necessary to make listing in the UK more attractive.

What will make listing more attractive is a simplification of the listing rules and a reduction in cost plus a reduction in the regulations such as onerous corporate governance regulations (such as the recently proposed climate disclosure regulations I commented negatively upon).

You can read my detailed responses to the FCA consultation here:

https://www.roliscon.com/Primary-Markets-Effectiveness-Review-Response.pdf

The FCA Consultation is here: https://www.fca.org.uk/publications/consultation-papers/cp21-21-primary-markets-effectiveness-review

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Changes to KIDs Proposed by the FCA

Yet another public consultation issued by the Financial Conduct Authority (FCA) in mid-summer is one on KIDs (Key Information Documents). This is relevant to private investors and is designated CP21/23 – see link below.

KIDs are imposed and regulated under the PRIIPs regulation as devised by the EU for packaged investment products such as funds and trusts. KIDs give basic financial information, risk indicators and likely future performance based on past performance. Those who purchase investment trusts for example will be asked to confirm they have read the KID before purchasing a holding.

But in reality KIDs are grossly misleading for many investment trusts.  This is because their estimate of future returns are based on short-term historic data. This has caused many fund managers of investment trusts to suggest that they should be ignored and investors should look at the other data that the companies publish to get a better view of likely future returns. The AIC has also criticised them and this writer certainly ignores the KIDs for the investment trusts I hold.

The FCA says “Our proposals should address the existing conflict between PRIIPs requirements which on the one hand require PRIIPs manufacturers to ensure the information in the KID is accurate, clear, fair and not misleading while at the same time prescribing the production and presentation of information on performance and risk which, in some cases, can be seriously misleading”.

The production of KIDs does require substantial effort on the part of fund managers so they add to investors’ costs while not being of substantial benefit to investors in many cases. The intention might have been good but excessive complexity has undermined their usefulness. The FCA admits that the mandated methodologies for calculating performance can produce misleading illustrations across almost all asset classes.

The proposal is to remove performance scenarios from KIDs which seems a very good idea. Alternative performance information is suggested be provided., such as narrative about the factors that might affect performance.  But they have avoided providing past performance data which is what is likely to be most important to investors.  

The PRIIPs regulations required the publication of a Summary Risk Indicator (SRI). But the methodology to be used seemed to rate some trusts as low risk when they are not – for example Venture Capital Trusts. So it is proposed to introduce new rules requiring an updating of an SRI if it is obviously too low.

The proposals from the FCA seem generally sensible although the AIC is still not happy. They say in a press release that: “….the SRI methodology does not work properly and needs a complete rethink. We were raising concerns about KIDs even before the rules were finalised and we have been calling for changes since their introduction on 1 January 2018. Investment companies are still at a disadvantage in having to produce these toxic disclosures, whilst UCITS funds have repeatedly been let off the hook. It’s high time the Treasury conducted a comprehensive review of KIDs rather than relying on a piecemeal approach to their reform”.

Respondents to the consultation can give their own views of course. There is a simple on-line response form.

Reference: CP21/23 Consultation Paper:

https://www.fca.org.uk/publications/consultation-papers/cp21-23-priips-proposed-scope-rules-amendments-regulatory-technical-standards

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Climate Related Bureaucracy to be Imposed by the FCA

It’s summer holiday time, so what better time to issue public consultations of which there are a spate of late? Is this because the authors wish to clear their desks before the holidays, or because they hope to get more or fewer responses at this time of year?

Anyway here are some comments on the first one I have looked at which is a consultation from the Financial Conduct Authority (FCA) on “Enhancing climate-related disclosures by asset managers……(CP21/17).”.

The changes proposed to the FCA Handbook which will apply to all asset managers, life insurers and pension providers aims to tackle the “climate challenge” by providing more information on climate-related risks.

But there will be substantial costs imposed with no obvious benefits. For example, asset managers are expected to incur implementation costs of £202 million with on-going annual costs of £116 million. What are the benefits? This is what the consultation report says: “We do not consider that it is reasonably practicable to quantify the benefits of our proposals. We have therefore not sought to quantify the benefits to the market of addressing the identified harms”. In essence they are saying that there is no obvious cost/benefit justification.

But they do argue that “the estimated costs of compliance are small relative to total assets under management of in-scope asset managers and asset owners. Total one-off and ongoing costs represent 0.002% and 0.001% of total assets under management for asset managers and asset owners, respectively”. They may be small figures but bureaucracy tends to grow over time.

How will such disclosures make any difference to climate? Won’t it just become a virtue signalling exercise by asset managers?

I have posted the following response to the consultation. I suggest readers say something similar:

“I have not answered the individual questions posed because I consider the imposition of the need for asset managers and others to produce climate related disclosures will be a costly exercise with no benefits. There are significant costs being imposed with no clear benefit to the investors in the assets covered. It’s just adding more bureaucracy to an already high level of regulation which will deter new entrants to financial markets and reduce competition. It is adding costs to investors with no benefit.

The FCA seems to barely have the resources to police and enforce the existing regulations in the FCA Handbook so adding more superfluous regulations is pointless. It is not at all clear how new ESG regulations will improve the returns to investors”.

Reference: CP21/17 Consultation Paper: https://www.fca.org.uk/publications/consultation-papers/cp-21-17-climate-related-disclosures-asset-managers-life-insurers-regulated-pensions

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Public Consultation on Prospectus Regime Review

Last week, Chancellor Rishi Sunak gave a Mansion House speech that “set out the government’s vision for an open, green, and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses, and powering growth across all of the UK”. See https://www.gov.uk/government/collections/mansion-house-2021 . The most important supporting document so far as stock market investors are concerned is the launch of specific proposals to reform the prospectus regime.

The Government wants to facilitate wider participation in the ownership of public companies when currently share issuance can be blocked to retail investors by a complex and rigid prospectus Directive as imposed by the EU. The commitment is to make the regulation of prospectuses more “agile” with the regulations better tailored to UK markets. The proposals follow on from Lord Hill’s Listings Review which recommended a fundamental review of the UK’s prospectus regime.

Investors in new stock market shares rely on the content of a prospectus when deciding whether to buy shares so it is important that the content is accurate and useful. But that is not always the case at present and the Government wishes to encourage the inclusion of more forward-looking statements.

Another problem is that the Prospectus Regulations are set in law and are extremely complex. That adds to the costs of prospectus preparation and also makes it difficult to revise them to meet changing needs (like the need to cover public offerings of securities in private companies such as “crowd funding” offers or offerings of overseas companies). One of the key changes proposed is to take prospectus regulation out of statute law and put it into the hands of the Financial Conduct Authority (FCA) to enable them to make or revise regulations as necessary.

A particular problem at present is the need for the costly preparation of a prospectus when issuing new shares in smaller companies that can easily breach the £8 million threshold under the regulations, thus requiring a prospectus. This is why so many private shareholders are excluded from participation and the shares are issued only via a “placing” to a small group of institutional or “inside” investors.

Another oddity is that a prospectus is often required when shares are being issued even though the company’s shares are already listed and the share purchasers already own the shares and hence are presumably already familiar with the company. The Government’s proposals aim to simplify the regulations in essence to make it easier to issue shares to the aforementioned groups.

The FCA would also be given discretion to say whether a prospectus is required and a further objective is to simplify the content of prospectuses for secondary issues.

There are a lot of detailed questions in the public consultation which I will not attempt to deal with here as they mainly cover many of the technical issues involved in this area. But you can see my responses in this document: https://www.roliscon.com/Prospectus-Review-Roliscon-Response.pdf

Readers are encouraged to submit their own responses to the public consultation.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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