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Society responds on UK ISA proposals

This IR Society response calls for simplicity to allow straightforward and speedy implementation, supports the eligibility of companies listed/traded on a UK recognised stock exchange (including investment trusts) for the UK ISA, but questions the exclusion of companies with overseas incorporations (except in the case of secondary listings).

Summary of Society views:

  • The overriding principle for the UK ISA should be simplicity, which will allow straightforward and speedy implementation.
  • The Society agrees that ordinary shares that are either listed on a UK recognised stock exchange or admitted to trading on UK recognised stock exchange should be eligible for the UK ISA.
  • We question the blanket exclusion for UK listed companies with overseas incorporations, although we have reservations as to the inclusion of overseas incorporated companies with a secondary listing in the UK, as this would not seem to be aligned with the intent of the initiative. 
  • We would however see logic in UK incorporated companies with a secondary listing being eligible. 
  • In our view, collective investment schemes should be eligible for the UK ISA provided their ordinary shares are either listed on a UK recognised stock exchange or admitted to trading on UK recognised stock exchange.
  • Investment funds constitute an important and growing part of the FTSE 350 and so we believe they should be eligible. 
  • We can understand some of the rationale for including corporate debt and gilts, but are not convinced their inclusion is essential and would not address the most pressing concerns of liquidity within the UK equity markets.
  • As noted earlier, simplicity and straightforward implementation would argue for rules which will not have perfect alignment with the primary intent, but a simple structure which maximises interest will be of greatest benefit to the UK equity markets.

Full text:

 

The Investor Relations Society

Suite 717, 70 Gracechurch Street

London, EC3V 0HR

HM Treasury

By email: ukisaconsultation@hmtreasury.gov.uk

 

6th June 2024

 

Dear Sirs,

Re: UK ISA Consultation

Introduction

Thank you for giving us the opportunity to comment on this consultation on introducing a UK ISA, available here: UK_ISA_Consultation. This response is made on behalf of the UK’s Investor Relations Society (‘the IR Society’).

The IR Society represents Members working for publicly listed companies and investor relations focused service providers, to assist them in the development of effective two-way communication with the markets. It has approaching 800 Members, drawn mainly from the UK, including the majority of the UK FTSE 100 and many of the FTSE 250 constituents and some from companies listed overseas.

The IR Society’s mission is to promote best practice in investor relations; to support the professional development of its Members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community. As such, our response has been primarily constructed through the lens of a corporate issuer.

We have not answered all the specific questions, but we set out below our general comments and some caveated support for the current proposals.  We have also provided some empirical views from our membership when asked them last year about certain aspects of the FCA’s ongoing review of the listing regime, and we attach a summary of the findings from that Member survey.

General comments

Improved retail investor participation would benefit the depth of London’s capital markets and thus their overall attractiveness to investors, whether through direct investment or incremental investment in institutional funds compliant with UK ISA rules. Retail investors can also provide significant amounts of liquidity in daily trading as well as driving share price moves, which benefits the market as a whole as institutional investors leverage this liquidity to access potentially illiquid stocks. Subject to our comments below, we are therefore very supportive of a UK ISA if it creates more demand for UK equities, although we note that this would only constitute part of any solution to improve the attractiveness of the London markets.

The Society is supportive of measures that would increase the competitiveness of the London markets and, as our poll has indicated, liquidity and depth of the market are important factors for this. In this regard, we draw on the findings from our 2023 ‘Listing Rule Reform’ IRO snap poll around the most significant factors in deciding where to list, in which:

  • liquidity was cited by 83% of respondents;
  • depth of markets was cited by 80% of respondents;
  • comparable peers was cited by 78% of respondents;
  • valuations was cited by 66% of respondents; and
  • investor / analyst expertise was cited by 61% of respondents.

Liquidity and depth of markets were therefore the most cited factors in deciding where to list, and encouraging additional access to investment targeted at the UK market is one way of improving liquidity and creating more market depth in the London markets.

Comments on the consultation proposals

As we outline above, the Society is very supportive of a UK ISA if it creates more domestic demand for UK equities, and we therefore broadly support the Treasury’s proposals as we agree it should improve capital flows into the London markets. However, in order to achieve the objectives, the overriding principle for the UK ISA should be simplicity, which will allow straightforward and speedy implementation.

We agree that ordinary shares that are either listed on a UK recognised stock exchange or admitted to trading on UK recognised stock exchange should be eligible for the UK ISA. However, we question the blanket exclusion for UK listed companies with overseas incorporations, although we have reservations as to the inclusion of overseas incorporated companies with only a secondary listing in the UK, as this would not seem to be aligned with the intent of the initiative.  We would however see logic in UK incorporated companies with a secondary listing being eligible. 

In our view, collective investment schemes should be eligible for the UK ISA provided their ordinary shares are either listed on a UK recognised stock exchange or admitted to trading on UK recognised stock exchange. Investment funds constitute an important and growing part of the FTSE 350 and so we believe they should be eligible.  We can understand some of the rationale for including corporate debt and gilts, but are not convinced their inclusion is essential and do not address the most pressing concerns of liquidity within the UK equity markets.

As noted earlier, simplicity and straightforward implementation would argue for rules which will not have perfect alignment with the primary intent, but a simple structure which maximises interest will be of greatest benefit to the UK equity markets.

We hope you find these comments useful. Please do not hesitate to make contact if you have any questions.

Your faithfully,

 

Liz Cole

Head of Policy and Communications

Investor Relations Society

(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

Published 6 June, 2024