FCA to Overhaul IPO Information Flow Over Conflict Concerns

  • Regulator proposes reforms to process in consultation paper
  • Potential conflict of interest with research from banks in IPO

The U.K. Financial Conduct Authority is looking to overhaul how information is distributed when companies go public, over concerns there’s a conflict of interest with research written by analysts from the banks involved in a listing.

The FCA published a consultation paper Wednesday proposing reforms to the flow of information for initial public offerings. Among them is a proposal to give independent analysts and researchers access to an issuer’s management before any research is published by analysts from the banks involved in the listing, who may be under pressure to produce more favorable commentary.

"Among many of the more thoughtful stakeholders around this there is an acceptance of a need for reform here," Christopher Woolard, executive director of strategy and competition at the FCA, said in an interview with Bloomberg. We’re "trying to get to measures where we increase the degree of transparency that’s available."

The regulator is proposing to make company prospectuses available earlier in the IPO process to make sure investors have more access to information beyond what they receive from “connected analysts” working at the banks involved in the IPO syndicate.

It’s common practice for analysts within prospective syndicate banks to meet an issuer’s management and their corporate finance advisers prior to a mandate being awarded to help their research. This gives rise to a greater risk of bias in the information provided to investors and the price discovery process, the FCA said.

Woolard said it would be "over-exaggerating" to say they’d found examples of complete misrepresentation of an issuer by an analyst to secure a bank a mandate and, if they had, it would have been referred to enforcement. But the market study highlighted a number of situations where there were "potential conflicts in the system."

The FCA issued a discussion paper in April looking at the potential issues in the IPO market. The regulator asked for feedback on today’s proposals by June 1, with a policy statement planned for later this year.

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