“Our competition is not really with Paris or Frankfurt; it's with New York and Singapore and Shanghai. What this package of Edinburgh reforms demonstrates is that we aren't complacent … we are going to be nimble, adaptive and hungry for business all over the world”

Jeremy Hunt

 

The Edinburgh Reforms announced last week by UK Chancellor Jeremy Hunt were deliberately understated. Announced on a Friday as a complex package of reforms, the media coverage has been limited — while Mark Austin (who led the review into the prospectus regime) describes them as not a ‘Big Bang’, but a ‘sensibly thought-through Darwinian evolution’.

However, their strategic significance should not be downplayed. They not only mark a major step away from decades of over-regulation by the European Union, but they also point the way for a new world order for finance, urgently needed for introducing a more egalitarian form of capitalism.

So in this week’s ‘Thought’, we summarise, and provide links for, the major developments, drawing attention to features needed to encourage personal share ownership; and we consider how the timing of this announcement in the midst of economic turmoil may open doors for a fairer and more participative system in the decades to come.

The deliberately low-key launch of Jeremy Hunt's policy statement, ‘Building a smarter financial services framework for the UK’, was further underpinned by its Edinburgh location: but that was a good choice to draw attention to the role that Scotland plays in making a substantial contribution to Britain’s place in the financial world. He covered a wide range of initiatives, including:

The background to many of the constraints on London's ability to deliver on the world stage has not been just our membership of the European Union over the past 40 years, but also the long shadow of the 2008 financial crash: which itself owed much of its origins to ‘Big Bang’ in October 1986.

The shadow is easiest to recognise in the first of Hunt’s initiatives, dealing with the relationship between the retail and corporate activities of large banks. It was the introduction of dual capacity — breaking down the rules which denied businesses the opportunity to act as both principal and agent — which was arguably the major long-term factor resulting in the 2008 financial crash. The merging of these roles resulted in Boards whose self-discipline evaporated under the intense motivation of self-interest and greed. Every opportunity was taken to introduce massive leverage, resulting twenty years later in financial meltdown.

This was addressed by the ring-fencing regulations which are now being reviewed and which were hardly a direct response to the dual capacity which had caused the mayhem in the first place. I recall writing in The Share Centre’s editorial, calling for re-defining these roles of principal and agent; the second of which is so vital to personal investor confidence. Also, former market-maker Brian Winterflood and I joined Simon Rose on 9th December 2014 to discuss this issue in a Share Radio podcast.

The other initiative which merits particular comment is the last in our list above: progressing Mark Austin's prospectus reforms, on which we commented on 20th September 2021. This is another welcome move forward, and three aspects merit particular comment:

  • Adjusting liability provisions so as to encourage issuers to include forward-looking projections within their new issue documentation. I recall finding it extraordinary to experience meetings in which corporate lawyers had to openly caution against providing such essential information for personal investors;
  • Removal of the €8 million threshold beyond which a full prospectus has thus far been required. This will significantly reduce the cost, in terms of both money and time, of preparing business proposals for capital-raising; and
  • The introduction of a new ‘Public Offer Platform’ regime which will provide the basis for much more flexible capital-raising in future.

But above all, this welcome set of proposals paves the way for the United Kingdom to take a lead role on the world stage for financial services. As we have called for at several times over the past few years, this is a key element in enabling a more egalitarian form of capitalism.

Gavin Oldham OBE

Share Radio