UK regulator proposes new IPO process amid competition concern

[LONDON] The regulator that helps oversee UK banks and brokerages proposed changing the process for initial public offerings to reduce favoritism and ensure that investors are better informed.

Analysts at firms not underwriting the IPO should have more access to the company's management, and the timing of publication of an approved prospectus should be changed to provide more information to investors, the UK watchdog said in a report Wednesday. The investment banks handling the deals often allocate shares to favored customers from their other businesses, which may not be in the issuer's best interests and may shut out other investors, the FCA said.

The UK regulator is reviewing practices in equity and debt primary markets after stakeholders raised a number of concerns during a separate competition review last year, the report shows. These operations make up about 25 per cent of revenue earned by universal banks and generated total gross fees for lenders with UK operations of about US$17 billion in 2014, the FCA said.

Clients may also be under pressure to award debt and equity issuance deals to banks that offer them loans and serve as their corporate brokers, the FCA said. This is "exacerbated" by the widespread use of contractual clauses that restrict client choice, a practice that the FCA said should end.

The FCA also said it would explore ways to reduce barriers to entry for non-universal banks and other firms.

BLOOMBERG