June 19, 2015 / 5:06 PM / 5 years ago

UK watchdog's data request shocks banks

LONDON, June 19 (IFR) - The UK Financial Conduct Authority has stunned banks with a sweeping draft request for data on thousands of bond and equity deals going back over the past five years.

The proposed request is part of the FCA’s probe of competition in the investment banking industry launched in May and asked bankers to respond to the feasibility of the wide-ranging initiative.

In it, the regulator asks banks for 37 data points on new issues, including investor order sizes, final allocations and pitch documentation - even for deals they failed to win.

The UK watchdog is training its spotlight on a sector that generates considerable fees, and more than a few bankers have been taken aback by the potential scale of the demands.

“The scope was very broad, asking us what we could provide, whether it’s reasonable and possible,” one senior debt banker told IFR.

“Let’s see what they come out with.”

SORE SPOTS

The FCA announced in February that it would look into the fairness of competition, including how banks decided on the allocation of new bond and equity issues, and published the terms of reference of a market study in May.

Smaller investors have often complained that they lose out on the most popular new issues, saying dealers give preference to their biggest buy-side clients.

But bankers on both the debt and equity sides insist the process is a fair one.

Whether or not that is accurate, however, there is no question that the watchdog’s investigation has generated real concern in the industry about potential pitfalls ahead.

For one thing, bankers say, the sweeping potential demands of the FCA could require substantial resources to fulfil.

One official told IFR his bank might have to provide details on more than 13,000 bond issues, possibly also including deals from European borrowers that were sold into the US market.

It also seems to be particularly vexing that the regulator is considering demanding information about deals on which banks didn’t finally end up with a mandate.

“I think in a lot of cases, banks just won’t have the information,” the first banker said.

Banks could also struggle to guarantee client confidentiality if forced to hand over all this information to the FCA, which is subject to freedom of information requests.

TALKING IT OVER

Officially, the International Capital Market Association says that it is not troubled by the review, though ICMA’s primary markets practice group was to discuss the matter on Friday.

“Were something untoward to be found out by this review, I would be surprised,” Ruari Ewing, a director at banking lobby group ICMA told Reuters when the FCA market study was published in May.

The FCA will meanwhile hold a series of meetings with the industry to discuss its findings, and a spokesperson said it hoped to do that by the autumn.

The watchdog’s report will be published with interim findings at the turn of the year, and a final report will come out in the spring of 2016.

But many in the industry are privately cautioning that the regulator is attempting a one-size-fits-all approach that doesn’t match the reality of how origination actually works.

“There is a big difference between a big M&A corporate deal, for example, and a two-year floating rate note for a bank,” another debt banker told IFR.

“I think many will argue they should use a more targeted approach - and look at a sample of deals.” (Reporting by Helene Durand; Editing by Marc Carnegie and Alex Chambers)

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