Exodus from the City of London: Top lawyer leads UK inquiry into lack of research

By Jamie Chisholm

The UK government has appointed a senior lawyer to investigate how Britain can encourage companies to list on the country’s stock exchange and halt a growing exodus that is threatening the City of London’s status as one of the world’s leading financial centres.

Rachel Kent, a senior partner at law firm Hogan Lovells, will begin Monday a review as part of the government’s ‘Edinburgh Reforms’, which aim to boost investment by reducing regulation.

Kent is due to present a review – which will focus on investment research – within three months, aiming to develop “concrete steps the government can take to improve London’s status as Europe’s leading listing destination and only second in the world.” ‘ the UK Treasury said in an email.

The appointment comes amid growing fears that the City of London is becoming less attractive as a destination for companies to raise capital.

Just in the last few weeks, Ireland-based building materials group CRH, a member of London’s blue-chip FTSE 100 index, announced that it could move its main listing to New York. The chip designer ARM has rejected fierce requests from the city and is also planning an IPO in the USA.

According to analysts, low valuations are a key driver of companies avoiding London. Citi’s European equity strategy team found this week that the UK stock market is trading at a record 40% discount to Wall Street

“As a result of this large gap in value, news indicates that CEOs of UK companies are once again being called upon to realize value for their shareholders, with a trans-Atlantic relisting emerging as a potential option,” said Citi.

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The UK government fears that a lack of targeted research that “provides investors with information enabling them to understand a company’s business model, performance and risks, and thus assess its value as an investment” is contributing to the city’s equity entropy.

“Concerns have been raised about the quality and quantity of investment research produced in the UK compared to other jurisdictions – particularly for certain sectors such as technology and life sciences – and that this could undermine valuations and therefore the attractiveness of the UK as a country to list and companies make access to private capital more difficult,” according to the Ministry of Finance.

The Treasury said pre-Brexit regulations may have hampered the delivery of such research.

“Some market participants and representative groups have specifically pointed to the EU-derived MiFID II unbundling rules as a potential source of the UK investment research decline. The review will look for evidence as to whether these rules may have contributed to the decline in quality and quantity of UK research,” it said.

-Jamie Chisholm

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03-09-23 0501ET

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