Final Report on Investment and Corporate Banking Market Study Published by UK Regulator 

The Financial Conduct Authority published its final report on the investment and corporate banking market study. The focus of the study was on primary market activities in the UK, including equity capital markets, debt capital markets and merger and acquisition services. The FCA published its interim report in April 2016, consulting on its proposed remedies to the deficiencies identified. The FCA does not consider the feedback received an indication that there is any reason to change its interim findings. The FCA concludes that whilst there are a wide range of banks and advisers active in the provision of primary markets services and despite finding that a number of clients, in particular corporate clients, believe that they are well served by such providers, there are some practices undertaken by certain providers that could have a negative impact on competition, particularly for smaller clients. 

The FCA is proposing a ban on restrictive contractual clauses in investment and corporate banking engagement letters and contracts where the clause covers future corporate finance services carried out from a UK establishment. Some banks use clauses in agreements that oblige clients to award or offer future services to that same bank. The FCA considers the most restrictive of these the “right of first refusal” and “right to act” clauses - which the regulator proposes to prohibit. The FCA is proposing to exclude engagement letters relating to bridging loans from the prohibition; because the nature of this type of loan means that banks are unlikely to offer such a loan if it cannot confirm whether it would be instructed to provide the longer term financing. Responses to the consultation are due by December 16, 2017. The FCA aims to publish a policy statement early in 2017 and is proposing that the rules would also apply from early in 2017. 

The FCA is still concerned about the use of league tables by banks to misrepresent their position to prospective clients. The FCA will work with the British Bankers’ Association and the Association for Financial Markets in Europe to develop industry guidelines to improve the presentation of league tables in client pitches. The FCA has also requested league table providers review their recognition criteria to remove the incentive to conduct loss-making transactions simply to gain a higher position in the tables.

The FCA also highlighted issues regarding banks’ share allocation policies in Initial Public Offerings and banks’ conflicts management with services provided to buy-side investors in its interim report. The FCA has since undertaken a further review of certain banks’ share allocation policies but did not find a clear correlation between the relative shortcomings of a bank’s allocation policy and whether the bank was likely to favor clients that generate the biggest revenues for the bank when making IPO allocations. The FCA found that a comprehensive share allocation policy alone was not sufficient and banks had to ensure their allocation policies were reflected in actual allocation practice. The FCA will conduct further supervisory work with firms that it has identified as having shortcomings in their IPO share allocation practices and policies in the lead up to implementation of the revised Markets in Financial Instruments Directive. The FCA is also considering how the IPO process might be changed so that access to independent research is available about an IPO before the pathfinder and approved prospectus are published. The FCA published a discussion paper with its interim report in April 2016, which included a proposal to amend the order in which the approved prospectus and connected research is made available to investors and to ensure that analysts from firms not supporting the IPO are provided with access to the issuer’s management. The FCA's work in this area continues and a further consultation paper is expected in late 2016/early 2017. 

View the final report.

View the consultation paper on the proposed ban of restrictive contractual clauses.

View the consultation paper on the availability of information in the UK Equity IPO process.

View the interim report.