By Ashley Alder, FCA Chair
Whether in London, in Brussels, Hong Kong or New York, the same discussion is underway: how do we maximise the ability of sustainable, vibrant capital markets to drive greater volumes of investment into the real economy?
That question – asked by policymakers and industry alike – is why we brought you all here today and I want to thank all the speakers who have made this conference such a success. I know that many of you, like me, have had whole careers dedicated to capital markets during an era where globalisation drove a remarkable surge of cross-border investment flows.
UK equity markets reforms
I started my career as one of a vast number of very junior lawyers who worked on the UK’s gas, water, electricity and telecoms privatisations of the '80s, amid the huge changes brought about by the financial services 'big bang'. For the last 30 years, I’ve been involved in the astounding development of China’s international equity and bond markets. And not long ago I led the International Organization of Securities Commissions (IOSCO), which is the global regulatory standard setter for securities markets.
I have seen first-hand how capital markets can work well. How they can drive business – with factories built, shops opened, goods delivered, people employed; how they can support long-term risk taking to deliver more secure retirements for millions of people; and how they can spur wider economic growth. I’ve also seen how market fragmentation and de-globalisation can stall cross-border capital formation.
But it's the opportunities that are unique to market-based finance which explain why the FCA has just delivered the most significant reforms of the UK’s public equity markets in a generation. These reforms are already having an impact, ensuring that more businesses can get into the shop window. But the harder task is to more effectively mobilise the domestic savings necessary to grow these businesses.
When we talk about listings regimes, stamp duty, accounting rules, or even initial public offerings (IPO’s), those outside this room could be forgiven for thinking we’re speaking in a foreign language, switching off as a result, unsure how any of it matters to them. So, we need to make a case for it to matter to a far wider section of the population.
Wider inclusion
In the US, stock market performance routinely features in political debate and retail participation is the norm. Total equity market capitalisation is around 55 trillion dollars, or 200% of GDP. On the other hand, three quarters of corporate financing in the EU is bank lending and, as we have heard, efforts to promote a capital markets union recognise the implications of this for the real economy.
UK market capitalisation stands at around 3.2 trillion dollars, or 100% of GDP. But since the heady days of the 1980s, structural and other factors have fostered a low-to-no risk culture, which if left unaddressed, has clear implications for our ability to finance future economic growth. Back in Hong Kong, I saw a very different investment culture. One in which retail participation was far greater than here in the UK, and where people were much more aware of how the market works and the risks involved.
In the UK, the proportion of householdsLink is external directly owning stocks and shares has halved in 2 decades. According to New Financial, just 4.4% of UK pension funds assets are held in domestic equities. That has a huge opportunity cost for capital hungry businesses, and for the wider economy. It creates a gap for individuals, too. Barclays reportsLink is external that 13 million UK adults are missing out by holding £430 billion in cash savings which could be put to more productive use. So, we are looking to address this.
Advice Guidance Boundary Review
Our Review with the Government of the boundary between regulated financial advice and guidance is incredibly technical. Unpicking the interplay between our own rules, domestic legislation and consolidated EU law is hard. But its aim is simple: unlocking innovation so people can get the support that suits their financial needs, in easy-to-access ways, at prices they can afford, so they have the confidence to make the most of their money. And, in doing this, we boost growth: for personal finances, for those seeking investment, and for the UK as a whole.
Value for Money Framework
This goal also underpins our Framework, developed jointly with Government and The Pensions Regulator, on value for money for workplace pension savers. This seeks to ensure the £130 billion a year saved into these schemes works harder for people. A focus on value rather than costs should help providers invest in assets that deliver greater long-term returns.
Through these and a raft of other initiatives, we are looking to shift our national view of risk. Today has shown that many others around the world are grappling with similar issues. We’re looking forward to continued collaboration with colleagues, both domestic and global, as we seek a common goal: capital markets that deliver the returns people need, and the investment that growth requires.
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