FCA sets out plans to open up bond market to retail investors
The Financial Conduct Authority (FCA) has set out plans to slash “red tape” around the corporate bond market today in a bid to open up the asset class to retail investors and wealth managers.
In consultation plans shared with City PM, the watchdog said it would look to coax more listed companies into issuing debt in smaller chunks and encourage new investors into a market that has traditionally been the preserve of professional City firms.
Under the plans, a single standard for corporate bond prospectuses will be introduced that covers both large bond sizes and those under £100,000, in order to “reduce costs and barriers for companies raising capital”.
“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, interim executive director of markets at the FCA.
“That’s more funding for companies, more easily, and more choice for investors too.”
The move comes amid mounting pressure from City firms to enhance retail access to both the equity and bond markets, where the UK has trailed well behind the US and some European nations.
Under rules set out after the financial crisis, bonds issued under £100,000 are classed as retail products and subject to closer scrutiny and paperwork for companies. The changes have inadvertently dissuaded firms from issuing smaller denominations and shut out individual investors from the market.
In a report last week, Barclays found that US retail investors held some $6.2 trillion in debt securities at the end of the third quarter of 2024, while just 36 corporate bonds from 21 firms were listed in the UK’s orderbook for retail bonds.
The bank proposed setting out a new definition for so-called vanilla bonds that will exempt them from the normal paperwork required to issue investment products to DIY investors.
While it said the FCA’s plans were well-intentioned, Barclays has warned there will be little movement without “nudges” to bond issuers that encourage them to include retail investors.
A group of City figures have also been lobbying the watchdog to change its rules for nearly three years. The Investor Access to Regulated Bonds group, headed by Primary Bid’s fixed income chief Stacey Parsons, has been lobbying the watchdog to cut the value of single bond.
“It should be that investors have access to all product areas,” Parsons told City PM. “People are much more self invested these days than they were 30 to 40 years ago, and much more considered about their own investment portfolio.”
The changes to the bond market come amid a wider push from government and the regulator to reinvigorate UK capital markets amid a drop off in listings and dearth of cash flowing into the market.
Julia Hoggett, the boss of the London Stock Exchange, welcomed the move today and said it was “vital that we make the UK’s regulated capital markets accessible to the broadest set of investors”.
“A regulatory framework and ecosystem that provides people with access to the right investment opportunities across equities and bonds means London’s markets become even more effective in providing the appropriate products to investors, whilst also serving their critical purpose of connecting companies with capital,” she added.