FRC Chairman urges Europe to act against declining equity markets

News types: Generic Announcement, Policies and Responsibilities, Policy Statements, Speeches

Published: 27 June 2013

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Chairman of the Financial Reporting Council (FRC), Baroness Hogg, today warned policymakers that urgent action is needed to arrest the decline in European equity markets. Speaking at the Federation of European Stock Markets (FESE) annual conference in Berlin, Baroness Hogg highlighted the need for a debate on how to build capital markets capable of financing sustained economic recovery. The ability to access capital at reasonable rates will become increasingly important to Europe’s competitiveness as other fast growing regions seek to obtain a greater share of limited supply.  
 
Baroness Hogg said,

“Equity markets are shrinking before our eyes. But risk capital is essential to business, fuelling investment and economic growth, generating jobs and wealth for future generations.
 
Markets need to be regulated in a way that means people can trust their integrity. But there needs to be a second objective to regulation as well, which is to improve the health of the listed equity market and the ability of listed companies to attract finance for investment.”  


Baroness Hogg’s comments come after the European Commission consulted on the long-term financing of the European economy.
 
In its response to the European Commission’s Green Paper the FRC urged Europe to consider how to develop pools of long term capital to invest in equities and identified three courses of action:
  • Examining the reasons for the declining participation of investors with a long-term perspective, such as insurers and pension funds, in equity investment;
  • Examining the costs inherent in the equity investment chain and taking steps to address these when they are the result of market failure or misdirected regulation;
  • Avoiding legislation that places an unfair burden and disproportionate burden on the listed sector.

The FRC noted the importance of a stewardship approach in aligning the long term interests of companies and savers. It called for asset managers operating in the EU to be required to state whether they subscribe to a Stewardship Code, as is already the case in the UK, and for greater focus on the content of investment mandates. In a report on adherence to the UK Stewardship Code published this week, the Investment Management Association (IMA) noted that the proportion of mandates which refer to stewardship continues to rise, and that there has been an increase in monitoring of companies and resources dedicated to stewardship among signatories to the Code.
 
Notes to editors:
  1. According to the OECD, the number of IPOs in OECD markets fell to 650 over the past decade compared with 1,170 in the preceding decade.  There was a corresponding drop in the average annual amount raised to US$69.8bn from US$134.3bn.  Last year’s Kay Review in the UK also said equity markets have not been an important source of new capital for British business for many years, while London Stock Exchange figures show the number of companies listed fell to 2,845 last year from 3,579 in 2008.  Figures from the Federation of European Stock Exchanges show that, in the same period, the number of companies listed on the Deutsche Boerse fell to 740 from 858, while listings on NASDAQ OMX Nordic (Denmark, Sweden, Finland, Iceland and the three Baltic states) fell to 766 from 845.
  2. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
  3. Read the FRC’s response to the European Commission’s Green Paper on Long Term Financing (PDF).