UK regulator to ease retail investor entry to company bond market | USAEMALL.com

Stay informed with free updates

Simply sign up to the UK financial regulation myFT Digest — delivered directly to your inbox.

The UK regulator has announced plans to open up the corporate bond market to retail investors by easing the rules for companies to issue debt in smaller sizes as it responds to government pressure to support economic growth.

The Financial Conduct Authority said on Friday it would reduce the disclosure requirements when issuing bonds worth less than £100,000 each, which it said were currently “harming the market” by demanding more information than for larger issues.

Companies would be freed from having to complete the listing application process for follow-on bond issues, the FCA said. It also plans to cut “red tape” by scrapping a requirement for companies to complete listings particulars as well as a prospectus when issuing bonds.

“We’re opening the door for corporates to issue bonds in small sizes so that a wider range of investors can invest in them,” said Simon Walls, the FCA interim executive director of markets. “That’s more funding for companies, more easily, and more choice for investors too.”  

He said the proposals were designed to ensure investors still had the information they needed to assess risks “while removing unnecessary costs and widening access”.

The moves followed last year’s overhaul of the rules for London-listed companies by the FCA, which gave more power to companies to make decisions without shareholder votes and to adopt dual-class shareholder structures.

Since the Labour government’s election last year, Prime Minister Sir Keir Starmer and his chancellor Rachel Reeves have stepped up calls for UK regulatory bodies to support its goal of reviving the country’s stagnant economy by easing the burden of red tape on business.

The extra reporting requirements for smaller bonds were designed as “a retail investor protection” as they are seen as more likely to invest in securities with smaller denominations. 

But the FCA said the issuance of low-denomination corporate bonds had fallen significantly since 2018. Given “considerable demand” from wealth managers to invest in smaller “plain vanilla” bonds, it said the extra guardrails were considered “unnecessary”.

The shift was welcomed by market participants. “We are fully supportive of what the FCA is doing here,” said Michael Smith, head of debt capital markets at the brokerage Winterflood Securities. “Retail had access to bonds before 2005, so it’s not like we’re breaking new ground.”

The FCA also presented more detail of a new regime for previously lightly-regulated crowdfunding sites and other “public offer platforms” that issue more than £5mn of shares or bonds to retail investors outside of the public market. 

The new rules are designed to tighten regulations for “minibonds”, which were at the heart of the 2019 collapse of London Capital Financial that left almost 12,000 investors with £236mn of losses.

The regulator said it would “ensure robust regulation of offers of securities such as ‘minibonds’ given the higher risks and past losses experienced by investors”.