Ministers have called in a top City lawyer to oversee a review of the investment landscape today amid fears the UK’s capital markets are losing ground to international competitors.
In a speech to traders in the Square Mile, City minister Andrew Griffith said that Rachel Kent, a senior partner at Hogan Lovells, would oversee the Treasury-led investment review, announced in the so-called Edinburgh reforms in December, which aims to boost the quality and depth of investment research in the UK.
Among the areas set to be examined by Kent are EU-era MiFID II rules, which forced financial institutions to unbundle their analyst and execution fees in 2018, and have since sparked a rout in senior analysts and overall analyst numbers.
Griffith said today that Kent will now conduct a deep dive into the knock-on impact of the changes and outline measures to reinvigorate analyst research in the UK.
“The review will gather evidence on the impact that the UK’s investment research offering has on both public and private markets, recognising the role that research plays throughout a company’s life cycle,” Griffith said.
“While a lot broader in scope, Rachel will also look specifically at the impact of the MiFID unbundling rules when considering solutions.”
Kent told City A.M. that the UK’s investment research landscape had “changed profoundly with the implementation of MiFID II and unbundling rules in 2018”.
“Now that the dust has settled, and against a post-Brexit, post-pandemic backdrop, the Investment Research Review presents real opportunity to understand, engage, and act to ensure an enabling regulatory framework and the UK’s ability to compete globally to attract companies to list and to expand, particularly in the technology and life sciences & healthcare sectors,” she added.
The Investment Review will look to rejuvenate the supply of analyst research in the City after a plunge in numbers across European markets recent year.
European brokers have shrunk their analyst teams by at least three times more than US firms since the MiFID II rules came into effect, equating to a 12 per cent loss of analysts in Europe against a four per cent loss in the US, according to a report by analytics firm Substantive Research in 2021.
The appointment of Kent comes after the City has been rocked by a slew of firms heading overseas in recent week, with Cambridge chipmaker Arm snubbing London in favour of the Nasdaq, and building supplier CRH switching its London listing for New York.
Yorkshire-based data firm WANdisco said on Monday that it was also scoping out a dual listing in New York but suspended its shares today in London amid a fraud investigation.
Griffith mounted a defence of the UK’s capital markets today, however, saying they are “among the deepest, most liquid and most competitive anywhere in the world.”
“We are Europe’s leading hub for investment, and the second largest globally,” he added. “We have the most international equities market and two of the world’s largest clearing houses.”
Griffith added that government was pressing ahead with reforms recommended by two major reviews of the UK’s capital markets conducted in the past two years – the Hill Review and the Austin Review – which have looked to boost the listings regime and secondary markets, respectively.