(Reuters) - A banking industry group has urged its members managing debt sales for companies to ensure those firms have a say in who buys their bonds, an area of contention flagged by Britain’s financial watchdog.
Concerns have been raised to the regulator that banks may allocate bonds to investors in a way that is not in the interests of issuers.
The new recommendation from the International Capital Market Association follows scrutiny of how the market operates by the Financial Conduct Authority. The regulator is due to detail soon the terms of a review of competition in investment banking.
Initial findings by the FCA in February said some firms may have limited control over who buys their debt or equity, and that banks may have financial incentives to allocate securities to certain investors.
One danger for firms is that if their bonds fall into the hands of speculative investors who quickly sell after issue, this can impact their future cost of borrowing.
After four years of Libor and currency manipulation scandals that have cost major players billions of dollars, trade associations have been eager to firm up informal codes of conduct in the hope they will head off stricter regulation.
Debt bankers have warned that hard and fast rules could have unintended consequences for a business that brought in over a quarter of the $90 billion fees earned by banks globally last year.
Banking sources told Reuters that the FCA has been in their offices in recent months asking questions about how the bond issue process is handled.
“It is purely for the sake of making explicit what is implicit,” said Ruari Ewing, a director at ICMA who penned the new wording for the body’s primary markets handbook.
“The issuer is encouraged to be as involved in the process as it wants to be.”
Feedback from fund managers to another review by the FCA, alongside the Bank of England and the UK Treasury, of abuses in fixed income, currencies and commodities markets also raised concerns about the allocation process. That Fair and Effective Markets Review (FEMR) is due to report in June.
ICMA has been in discussion with the FCA over the changes. It has sent the new wording to its members and will publish them later this week.
