Explainer-Boosting the City: Part Two of UK’s post-Brexit finance reforms

Explainer-Boosting the City: Part Two of UK’s post-Brexit finance reforms

By Huw Jones

LONDON (Reuters) – Britain’s finance minister Jeremy Hunt has set out proposals to unlock at least 50 billion pounds ($64 billion) in investments to bolster London as a competitive global financial centre.

The so-called Mansion House Reforms come as part of plans launched last year to take advantage of Britain’s freedom to write its own financial rules after leaving the European Union.

WHY ARE PENSIONS A FOCUS?

The finance ministry believes that some of the billions of pounds at pension funds which are currently invested in safe assets such as government bonds would offer better returns for savers if they were invested in unlisted start-ups.

Companies on the London Stock Exchange’s AIM and Aquis Exchange’s growth market would also be eligible.

One aim is to channel pensions cash into fledgling fintech, life science and other growth companies – but not infrastructure or property – so they can grow in scale and list in Britain, rather than in New York as chip designer ARM has done.

The pensions sector is highly fragmented and Britain wants to copy countries such as Australia and Canada – possibly via mandatory mergers – where pension funds have combined to create giants with more investment firepower.

Starting over the next 12 months, nine pension firms operating in Britain have agreed a voluntary compact to invest 5% of funds in growth companies by 2030.

Many savers in direct contribution pension funds are years away from retirement, making it easier to make changes now without risking their pensions.

Britain will also explore whether it needs to create a new vehicle as an alternative route for schemes to invest in private markets.

WHAT IS UNBUNDLING?

The government said it will look to scrap the “unbundling” rule inherited from the EU. It requires banks to spell out what they charge asset managers for stock picks and other company research.

Previously, the fee was “bundled” with charges for executing trades.

Critics blame the rule for a drop in research on smaller companies and a decline in listings. But markets industry body AFME says it has seen no evidence that the rule is to blame for less research and the trend of fewer listings predates the 2018 rule.

A review has proposed a new research platform as a one-stop shop for firms looking for research experts.

WHY A NEW TRADING PLATFORM?

The proposed Intermittent Trading Venue would be launched by the London Stock Exchange in 2024.

The finance ministry has said it would be the first in the world to bridge the gap between listed public markets and private companies.

Private firms could auction shares to help gain scale while remaining privately owned and avoid the regulatory burdens of a listing or having to sell themselves to a bigger rival.

HOW WILL BUYING SHARES BE EASIER?

Britain will make trading shares more efficient by ending the use of paper trails for official transaction records.

EU-derived curbs on where investors can trade shares around the world will be scrapped while prospectuses used by companies to market their stocks and bonds will be simplified.

WHAT’S NEXT?

The government will hold public consultations on some of the proposed pension reforms while regulators already have powers to implement other changes, such as the rules on research.

Britain is expected to hold a national election next year with the opposition Labour Party leading the opinion polls. Labour officials have supported some Conservative government policies such as the long-trailed pension reforms.

($1 = 0.7822 pounds)

(Reporting by Huw Jones; editing by Mark Heinrich)