Key Industry Developments: Q1 2025 And Beyond

Anne-Marie Clarke - Industry Director at EQ is joined by Martyn Warren – Head of Industry Operations, CREST & SWIFT- to share their reflections on significant developments in capital markets throughout Q1 2025 and look ahead to what we can expect going forwards.  

Change is a constant – never a truer statement when we consider the external changes that are affecting our industry, and the opportunities and challenges they present. Our roles are to keep you informed and advise you, through: updating you on what we are doing to actively influence industry initiatives through our involvement in various forums, taskforces and working groups; supporting you with relevant information to keep your internal stakeholders informed; and importantly advising on the actions we are taking in relation to our products and services and offering our advice on what actions issuers will need to consider.  

UK Capital Markets Reforms 

The year began with our attendance at the UK Capital Market Reforms Update at the London Stock Exchange (LSE) to hear about how market reforms are developing and how they are designed to impact and invigorate the market. With panellists made up of the Capital Markets Industry Taskforce (CMIT) the event was aimed at the advisor community. At the outset there was a core message of an objective to have a thriving economy serving issuers and investors. It was clear that the CMIT agenda is multifaceted, and the focus is on completion of the many activities identified. Five distinct areas were discussed: 

1. the quality of Primary and Secondary Capital Raising Rules to provide access to a market for a broad range of companies, and for those companies already on the market to have better freedom to create value;  
2. incentivising high quality research on companies provided by the sell side community;  
3. the availability of risk capital in the UK, whether that be through pension funds, institution funds or retail funds;  
4. appropriate corporate governance, stewardship and remuneration guidance; and  
5. the ecosystem for scaling consequential private companies.  

The journey of UK capital market reforms since Lord Hill’s review in November 2020, was set out, demonstrating the vast amount of change that has already been achieved, how they interlink, and what is to come: Listing Rules Reforms were implemented in July 2024; Remuneration Principles and Corporate Governance Codes were updated in 2024 with the focus on streamlining, and the clear concept of “explain” under the Code. These were just two of the reforms that have been implemented. 2025 focusses on the Pensions Investment Review, Prospectus Rules Reform and the development of the first major regulated private securities trading platform, PISCES. It is clear that 2025 looks to be a key year in terms of change to the way the UK capital markets currently operate. With our thanks to the LSE for inviting us to the event, demonstrating the importance of the role of advisors in supporting the agenda to drive UK market capital growth. 

Industry Updates 

Through our ongoing work and being actively involved in various industry forums, we would like to share with you some key updates. 

Governance: From a governance perspective, the latest UK Corporate Governance Code has come into effect for companies with an accounting period beginning 1 January 2025, the Investment Association Principles of Remuneration for 2025 will be being considered by Remuneration Committees when structuring Remuneration Policies and reviewing share plan rules, and the Stewardship Code consultation period has concluded with the expectation of a new Stewardship Code due for implementation in 2026. EQ provided its response to the Stewardship Code consultation based on our expertise and knowledge of engaging with issuers, investors and proxy advisors, understanding the importance of engagement and relationships between those running companies and those who invest in companies, to deliver long-term sustainable success and growth. For those companies applying the QCA Code, the 2023 update is applicable from accounting periods beginning 1 April 2024, with two key areas being remuneration, with the possibility for voting on both the remuneration policy and remuneration report, and the expected annual re-election of directors. 

Transparency: Focussing in on transparency, the Economic Crime & Corporate Transparency Act (ECCTA) aims to reform the role of Companies House and improve transparency over UK companies. Through our role on industry forums, we are actively engaged with the Department for Business and Trade on the changes, particularly focussed on the impacts on issuers to ensure that the proposed changes are practically administrable, and that there is a sufficiently long lead time for implementation once the transition arrangements are agreed. Some of the key challenges are for example in the use of legal initials for shareholder names, and the actions required by issuers to check for compliance/non-compliance for existing and new shareholders on the Register of Members. Turning to the requirements for director identity verification procedures, one of the areas we are seeking clarification on is the use of the Unique Identifiers (UID) for directors once issued where the name information recorded at Companies House differs between appointments. We are also seeking clarification in relation to historically wet signed documents and the protection of an individual’s signature, full date of birth and registered address.  

Admission of securities to trading: Prospectus Rules Reform aims to deliver a new, smarter legal and regulatory framework for the regulation of admission of securities to trading. A company wishing to list or raise capital on a regulated market has typically needed to publish information as a prospectus, with the requirements set through EU legislation. Since January 2024 the new POATRs (Public Offers and Admissions to Trading Regulations) have provided a new framework, with the FCA given greater discretion to set new rules in this area. The proposals aim to reduce the costs of listing on UK markets, make capital raising easier and remove barriers to retail participation. Some of the more substantive changes proposed are: 

• When a prospectus may be required: increasing the threshold that triggers the need for a prospectus for further issuances from 20% (of existing fungible securities) to 75% 
• Sustainability Related Disclosures in prospectuses: content requirement in relation to certain climate-related disclosures where the issuer has identified climate-related risks or opportunities as material to its prospects 
• Protected forward looking statements (PFLS): proposals for a clear framework to give issuers legal certainty on what information can be deemed PFLS and to ensure investors can identify and assess such content. 

Other changes proposed include: 

• The ‘six-day’ rule, reducing to three: reducing the period for a prospectus to be made public before shares can be admitted to trading at initial public offer.
• Requirements for a summary: reduction in prescribed content, including removing the requirement for detailed financial information in the summary and allowing cross-referencing. 

The consultation has now concluded, and we await the FCA Policy Statement, with new Prospectus Rules expected by the end of H1 2025. 

Private company share trading: A new type of stock market for private company shares called PISCES (Private Intermittent Securities and Capital Exchange) forms part of the strategy to reinvigorate capital markets. This will be the first regulated private market for trading secondary shares offering an opportunity for active investment in private companies without those companies needing to IPO or have a trade sale to achieve that aim before they are ready. This is only one of the advantages envisaged.  With the consultation now concluded, HM Treasury have published the draft legal framework, with next steps expected to be the drafting of FCA rules over the summer  and first auctions beginning thereafter, potentially as soon as the end of 2025.  

Digitisation and dematerialisation: The Digitisation Taskforce, often also referred to as Dematerialisation, have yet to publish their final recommendations. We expect this by the end of H1 2025. With the consultation period ending in September 2023, it may be helpful to refer to EQ’s views on the potential recommendations in the Taskforce’s interim report published in July 2023.  Through our involvement in the various industry forums, we remain focussed and ready to participate when the recommendations are published, and we fully expect to be involved in industry workstreams to resolve legal, operational, communication and practical challenges. We will be focussed on transitional arrangements to help simplify and expediate delivery. As reported in our last industry update, there are ways in which companies can support further digitisation in advance of the final recommendations, such as an increased focus on e-comms, especially for institutional investors, removing cheques for dividend payments, and removing the need for a paper dividend confirmation/tax voucher, by utilising the CREST system to make dividend payments. If company Articles are required to be amended to achieve further digitisation, now could be the ideal time to consider this for the 2025 shareholder meeting. 

Turning now to changes in relation to the trading of shares, Anne-Marie sat with Martyn Warren, to explore some of the key activities underway: 

CREST transformation

Euroclear UK & International (EUI) have embarked on a multi-year transformation programme to transition from the current technology platform onto a new modular technology platform. 

What is this initiative and its purpose?
The vision for the transformed CREST system is for it to be the benchmark of stability for the UK financial markets with its core CSD (Central Securities Depositary), and drive ecosystem efficiency with value-added services to their diverse customer base leveraging their position within the Euroclear group. 

This vision has six objectives: 

• Increase the operational and financial resilience of EUI and the CREST system 
• Increase the client value provided by the CREST system 
• Enhance the business agility and support the UK financial markets 
• Improve their operational efficiency and also that of its clients 
• Realise synergies with Euroclear group 
• Remove the technology debt that has accrued in the current CREST system 

How has EQ been involved?
By attending all available roadshows, workshops and supporting the vision with feedback on consultations and discussions on several relevant market forums, with an eye on the impacts such a programme could have on the landscape.  

What’s the key update?
EUI are holding a series of roadshows across the UK in March 2025 to provide an update on progress to date and set out the next phase of the programme. 

What’s next?
EQ will attend, absorb and evaluate the detail once available, and update clients accordingly. 

Accelerated Settlement T+1 (Settling a trade 1 day after execution)

The UK is preparing for the move to a T+1 settlement cycle for securities, delivering positive change for the future of financial markets. The UK Accelerated Settlement Taskforce was set up in December 2022 to examine the case for the securities settlement cycle to be shortened from its current standard of Trade Date plus 2 days, or ‘T+2’, to Trade Date plus 1 day or ‘T+1’. 

What is this initiative and its purpose?
The taskforce is dedicated to advancing faster, more efficient, and secure financial transactions, ensuring the UK remains at the forefront of innovation in the global financial landscape. 

How has EQ been involved?
Active representation as part of the oversight committee through our participation in industry groups such as PIMFA (Personal Investment Management & Financial Advice Association) and AFME (Association for Financial Markets in Europe). 

What’s the key update?
The date for the switch-over has been recommended for 11th October 2027. The taskforce recommended several initiatives that should be implemented to help prepare for T+1. It was recognised that several technical and operational changes would be necessary for the UK to be ready to move to T+1 and so the report also recommended that a new group – the Technical Group – be set up to determine the details of these necessary technical changes. The UK government accepted all the recommendations made in the “Accelerated Settlement Taskforce Report” and subsequently established the Accelerated Settlement Technical Group to carry out the next phase of the work. 

What’s next? 
We will follow the preparation initiatives closely for the impacts on operational delivery and functional needs. More information can be found on the dedicated website - https://acceleratedsettlement.co.uk/ 

Anne-Marie also spoke with Jennifer Rudman, EQ’s Industry Director for Employee Share Plans, for her views on T+ 1.  

“Faster settlement will impact our employee share plan processes and will form part of our project work in the lead up to implementation in October 2027. We’ve already worked on T+1 settlement for our US and Canadian listed clients, so can draw on that experience when preparing for this in the UK.” 

SAF (Security Admissions Form)

This is the documentation completed by an Issuer when they are looking to arrange for an eligible security to be submitted for settlement in the CREST system. 

What is this initiative and its purpose? 
As a systemically important financial market infrastructure that sits at the heart of the UK and global capital markets, EUI has due regard to financial crime legislation. With the introduction of the Economic Crime (Transparency and Enforcement) Act 2022, EUI considers it is appropriate and necessary to further strengthen its financial crime controls, including in relation to anti-money laundering and financial sanctions, with a view to protecting the integrity of the CREST system. Enhancements to the legacy process and application documentation have been designed to fulfil this. 

How has EQ been involved?
We have been contributors to all the workshops and consultations that support this initiative; with our significant experience in the corporate action space, we are well placed to provide feedback and guidance. 

What’s the key update?
From February 24th the new protocol and form came into effect for Initial Public Offerings (IPO) and will require Issuers to supply more details and information to support the application.  

What’s next?
We will now roll on to look at other types of cases such as the launch of Depository Interests, other types of corporate action driven securities (Open Offers, Consolidations etc.). 

RLR (Remote Legal Record)

The technical architecture to maintain the RLR on UK soil is complex and creates a fragility in the EUI service delivery model, which historically has been the cause of settlement outages. Following a S166 report, the ability to temporarily operate without the RLR, known as SCARF Mode, was delivered as a significant resilience improvement in 2022. 

What is this initiative and its purpose?
The complete removal of the RLR, being proposed, would provide a further resilience improvement by eliminating the short period of settlement outage whilst switching to SCARF Mode as well as simplifying the technical footprint, with associated cost savings. The proposal has been discussed in detail with the UK’s Central Securities Depository (CSD) regulator BoE (Bank of England) FMID (Financial Market Infrastructure Directorate), with no objections raised. 

How has EQ been involved?
Attending the workshops and responding to the consultations, ensuring we have asked the salient questions to appropriately challenge the concept. 

What’s the key update?
The consultation closed on March 13th, with EQ submitting its response. 

What’s next?
We await the outcome of the consultation and answers to the EQ feedback.