UK moves to regulate mini-bonds amid financial market turmoil

Britain must regulate mini-bonds in the same way as shares, the government said on Tuesday, as it drew up plans to make its capital markets more attractive to investors.

The UK Treasury has proposed that issuers of mini-bonds – or bonds that cannot be publicly traded – should trade on a regulated market. This “new, tailor-made” regime would replace the current system in which mini-bond issuers were not required to offer any protection to investors.

The move was part of a series of post-Brexit reforms to capital market rules released following consultation with the City last year. The Treasury also announced changes to private electronic marketplaces operated by banks and high-frequency traders and introduced a new live database of transaction information.

Boris Johnson, the Prime Minister, has urged ministers to speed up regulatory reforms to illustrate the “opportunities of Brexit”.

The bankruptcy of mini-bond provider London Capital & Finance in early 2019 became one of the biggest retail investment scandals in UK history. It took £237m of money from investors, hitting the savings of 11,600 customers, many of whom were new investors and retirees. A report on the collapse by Dame Elizabeth Gloster, a former appellate judge, criticized the failure of regulators to oversee the bonds.

Tom Callaby of law firm CMS said the reforms would allow investors to claim compensation if something went wrong. But he warned that “it is important to remember that this alone will not prevent failures or fraud from occurring, particularly if platforms do not do their due diligence and monitor rigorously. issuers”.

John Glen, economic secretary to the Treasury, said in a speech on Tuesday that many of the changes were aimed at ensuring investors get the best price for their equity and derivatives trades.

Rejecting calls for sweeping deregulation, he said the measures were “common sense but meaningful”. “They don’t change for change’s sake. The UK and EU regimes will evolve as they adapt to market needs,” he told an audience of bankers and lawyers at an event organized by the group. of AFME pressure.

Among the reforms Glen detailed was the creation of a “consolidated web” or live database that consolidates basic trading information from competing trading platforms.

He also confirmed plans to reform corporate prospectus rules to give issuers more freedom to raise capital. “We have to think about it from the perspective of the entrepreneur – how can we create insurance around capital pools,” he added.

Last month, Glen signaled long-awaited reforms to the European-era ‘Solvency II’ regulations of the insurance industry, intended to free up billions of pounds for investment in infrastructure projects.

“We are delighted to see that the government will make changes that will support more vibrant UK capital markets, providing greater choice for clients and clients,” said David Postings, chief executive of lobby group UK Finance. .

“The important thing now is that the plans set out by the government are put into effect as soon as possible.”

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