The Financial Conduct Authority (FCA) has proposed reforms to improve the timing, sequencing and quality of information in the UK’s initial public offering (IPO) process.
In its consultation paper—Reforming the availability of information in the UK equity IPO process—the FCA proposes changes to its Conduct of Business Sourcebook to improve the usefulness of prospectuses, and alleviate the risk of conflicts of interest.
The changes would apply to investment banks that carry out “regulated activities”, including underwriting or placing equity securities in an IPO on a regulated market, for which a prospectus is necessary. This would include an IPO on the main market of the London Stock Exchange, but not AIM.
The new rules would allow unconnected analysts to join the bank’s connected analysts in any communication with the issuer’s management, or be allowed to interact with management enough to enable them to form a substantiated opinion before publication of any connected research by syndicate bank analysts.
If the unconnected analysts are allowed to join the bank’s connected analysts in this way, connected research may be published one day after publication of the prospectus or registration document. If not, connected research cannot be published until seven days after publication of the prospectus or registration document.
To mitigate the risk of bias to connected research, analysts will not be able to interact with an issuer to whom the investment bank is proposing to provide underwriting or placing services, until the investment bank has accepted an underwriting or placing mandate. Also, the parties must have contractually agreed and documented the bank’s position in the syndicate.
The FCA expects to publish a policy statement outlining changes to the Conduct of Business Sourcebook later in 2017.