Published: 31st October 2016

Of relevance to:

IPO stakeholders including corporate finance advisers, investment banks and buy-side investors


In May 2015 the FCA launched a market study into investment and corporate banking by publishing its Terms of Reference (see Regulatory Roundup 65). One focus of the study was the availability of information during the IPO process.

In April of this year, Regulatory Roundup 75 included an article on a double IPO offering from the FCA with the publication of both a Discussion Paper based upon feedback and data requests from various firms (“Availability of information in the UK Equity IPO process” – DP16/3) and an Occasional Paper (“Quid pro quo? What factors influence IPO allocations to investors?” – OP/15).

The FCA has now published a Final Report on its market study (MS15/1.3) together with an updated version of OP/15 – please use the link to OP/15 in this article rather than the link within Regulatory Roundup 75.

The conclusion is that the universal banking model works well for a wide range of participants but the FCA has highlighted certain areas where action is proposed:

  •  A ban on restrictive contractual clauses

Banks at times use contractual clauses that restrict a client’s choice in future transactions. The FCA proposes to prohibit such exclusivity provisions and has issued a separate consultation paper on this area – CP16/31 “Investment and corporate banking: prohibition of restrictive contractual clauses” where comments are invited by 16 December 2016.

  • League table misrepresentation

Banks are accused of routinely presenting league tables to clients in a way that inflates their own position. The FCA will work with the British Banking Association and the Association for Financial Markets in Europe with a view to developing industry guidelines to improve the way in which banks present such information to clients.

  •  Incentives for loss-making trades

Some banks have been identified carrying out loss-making transactions purely to generate a higher position in league tables. The FCA has asked league table providers to review their recognition criteria so as to reduce the incentives for banks to undertake such league table trades.

  •  IPO allocations

There is evidence that banks have skewed IPO allocations to those buy-side investors from whom the banks derive the greatest revenue. It is noted from the paper that the FCA’s analysis shows that some banks have not been following their own allocation policies. The FCA will conduct supervisory work with those firms whose allocation policies and practices fall short of expectations. However we are warned that the FCA expects those banks falling outside of this proposed supervisory work should also review their own policies and practices – the FCA then goes on to say “we will consider whether to conduct further work in this area in the future if we do not see adequate changes in allocation practices”.

The associated FCA press release advises that the FCA expects to publish a separate consultation paper on changes to the IPO process in winter 2016/17.

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