(Adds further details)
By Huw Jones
LONDON, Oct 18 (Reuters) - Britain’s capital markets watchdog confirmed changes on Tuesday to how investment banks treat business customers, saying it will ban clauses that tie in clients and create a more open market for initial public share offers (IPOs).
Banks will also be stopped from “misrepresenting” their performance in industry league tables to win new business.
The Financial Conduct Authority (FCA) published its final report into competition in the investment and corporate banking market, confirming “remedies” outlined in an interim report in April.
“The universal banking model clearly works well for a wide range of participants but areas such as the use of restrictive contractual clauses, league table credibility and the allocation of shares in IPOs are not always working as well as they could,” Christopher Woolard, FCA director of strategy and competition, said in a statement.
“This sends a signal that we expect firms to compete on the merits, not by restricting clients’ choice on future transactions, drawing misleading comparisons with competitors’ performance, or exploiting conflicts of interest.”
The package of measures, some of which will be consulted on further, include a ban from early 2017 on clauses that restrict a bank’s customer from using another bank in future capital market transactions.
The watchdog will also crack down on how banks “routinely present league tables to clients in a way that inflates their own position”, suggesting that “some banks carry out loss-making transactions purely to generate a higher position in such tables.”
It will work with the British Bankers’ Association and the Association for Financial Markets in Europe, two banking trade bodies, to develop and adopt guidelines to improve how banks present such information to customers.
The FCA will also revise preparations for listing a company on the stock market, kicking off with a discussion paper on Tuedsay ahead of formal consultation on specific reforms later in the year.
Currently there is a “blackout period”, meaning investment research from a bank involved in listing a company is not published until a prospectus is also published, usually at a late stage in the IPO cycle.
This means that analysts at other banks don’t have access to the data needed to write their own report on the IPO.
“This leaves connected research as the only source of information available to investors during a crucial stage of the process,” the FCA said.
In the discussion paper, the FCA said options for change include publishing the prospectus seven days before any connected research is published.
Giving access to all analysts to an issuer’s management to gather data directly could be another option, it said.
The FCA said it will consult on changes to the IPO process later this year. (Reporting by Huw Jones; Editing by Greg Mahlich)