Retail access to Corporate bonds
Vibrant capital markets bring together companies who want to access financing with investors who want to see their money grow. This happens in two ways: via equity shares in a company listed on a public stock market, and as debt in the form of corporate bonds. Yet, in contrast to equities that are easily available to retail investors, bonds are much harder to invest in directly for UK retail investors.
Recently in the UK, the FCA has set in train a series of initiatives that are designed to make it more attractive to issue corporate bonds that retail investors can access.
In our latest report, “Retail access to Corporate bonds”, we have combined our experience as an advisor to corporates issuing bonds, our role supporting the placement of those issuances and our position as a provider of retail investor solutions and wealth management advice and services, to consider whether these proposals will be effective. And, as part of that process, we have proposed an alternative solution.
Democratising investments: why corporate bonds should be open to everyone
One of the reasons why retail investors struggle to directly access corporate bonds is due to the cumulative effect of successive waves of regulation, which has been introduced in the past 20 years to improve investor protection. This has had the perverse effect of overly disincentivising the issuance of bonds to retail investors by corporates.
Based on the insights in our report, while well-intentioned, we do not think that the proposed regulatory changes would have a significant impact on the availability of corporate bonds for retail investors. Instead, we recommend that the regulatory framework needs to be reformed so that:
- Significant barriers to including retail investors in corporate bonds issuances currently only accessible to wholesale investors are removed by reducing obligations upon issuers to the minimum necessary.
- Nudges are introduced to encourage corporates to involve retail investors in issuance.
- Responsibility for ensuring that customers are supported through the lifecycle of the bond is placed upon distributors, who have a direct relationship with retail investors.
Our policy recommendations
Policy recommendation 1
Create a definition of “vanilla corporate bonds” and clearly exempt them from the retail disclosure regime, and the retail-specific disclosure requirements under the Prospectus regime.
Policy recommendation 2
Replace the target market determination with issuer confirmation that vanilla corporate bonds are suitable for any investor type.
Policy recommendation 3
Require consideration of issuing in lower denominations when agreeing the allocation policy between the issuer and investment firm. Specific reason/s for excluding distributors of retail investors should be included in the written allocation policy.
Policy recommendation 4
Responsibility for the on-going obligation to review vanilla corporate bonds taking into account any event that could materially affect investors over the duration of the bond should be placed only upon the distributor.
About the author
Barclays’ Group Policy Development team creates public policy thought leadership content on behalf of Barclays. Our work draws on the bank’s expertise, data, and insights, and is intended to inform the design and application of public policy solutions in response to pressing economic and societal challenges.
About the Investor Access to Regulated Bonds Working Group (IARB)
Founded in 2022 by a group of industry professionals, and sponsored by the London Stock Exchange, IARB brings together industry stakeholders with regulated buy-side intermediaries, who seek to directly access Bonds, in line with institutional investors. For more information please see IARB LinkedIn.
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