Finance

UK government mulls changes to MiFID II equity research rules among package of measures to boost City


The government is planning to announce a package of measures to boost the City and its provision of finance to the broader economy which could include changes to the MiFID II rules on equity research.

In his Autumn Statement, Jeremy Hunt promised further regulatory changes that would underpin the growth of the City and cement London’s position as the leading international financial centre.

The chancellor said the government would announce changes to EU regulations in five growth areas, including financial services, “by the end of next year”.

But a person close to the plan said the government hoped to unveil a broader growth package for the City, including some reforms to rules inherited from the EU, much sooner.

READ Why the City needs a refresh on its relationship with the EU

Officials are reviewing proposals that Kwasi Kwarteng was set to announce before he was forced to resign as chancellor after September’s disastrous mini-Budget. These included relaxing the MiFID II rules that require asset managers to pay for research on companies directly, rather than via payments bundled into share trading commissions.

The MiFID II rules have greatly reduced the amount of research produced on small companies which critics say increases their cost of capital and deters companies from going public in London. One option would be to increase the £200m market value level below which companies are currently exempted from the rule.

To the surprise of many in the City, Liz Truss highlighted the issue during her successful Tory leadership campaign in the summer. Sceptics have argued that the City has adapted to the MiFID II research payment regime and changes now would have limited impact.

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The chancellor’s announcement that reviews of EU rules would be concluded by the end of next year disappointed some in the City who have been hoping that any reforms requiring primary legislation could be introduced as amendments to the Financial Services and Markets Bill currently going through parliament.

But a person with knowledge of Downing Street’s plans said that the City package would be announced soon, which would allow the Financial Services and Markets Bill to be used as a legislative vehicle for changes.

Among the possible reforms for which financial firms have been lobbying, big UK banks are hoping that the government might propose a loosening of the rules on ring-fencing of their retail operations which they argue puts them at a competitive disadvantage and damages the broader economy.

READ How Brexit has chipped away at London’s financial crown

In his Autumn Statement, the chancellor announced long-awaited reforms to the Solvency II capital regime for insurance companies. But government insiders said that it was decided not to announce other pro-growth reforms that might distract attention from the tough fiscal stability message of the tax and spending changes.

To contact the author of this story with feedback or news, email David Wighton

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