The lawyers ushered in the new dawn of the city of London

Britain’s capital markets are undergoing their biggest shake-up in decades as ministers and government executives seek to restore London’s competitiveness and reverse the flow of investment to other international financial centres.

These efforts, which began under the previous Conservative government and have been supported by the new Labor administration, include an overhaul of stock market listing rules and an attempt to encourage UK pension funds to invest £50bn in private companies with high growth by the end of the year. the decade.

The aim is to tap into the country’s vast pools of pension capital, both to support (and retain) British start-ups that might otherwise list abroad, and to attract international business to the city .

Politicians made headlines, driving the ambitious agenda. But corporate lawyers have exerted significant influence behind the scenes, leading parts of the work on the rule changes and advising on the implications.

And while UK corporate law firms stand to earn lucrative fees if the effort to revitalize London’s moribund initial public offering market is successful, their aim is broader, according to the people involved.

“It’s motivated by the fact that it’s important to our economy,” says Mark Austin, a partner at Latham & Watkins who was heavily involved in designing the changes. “But it’s also about wanting to make sure our generation teaches . . . a financial services sector for the next generation that is as good, if not better, than the one we have today.”

Austin authored a government-commissioned review in 2021-22 into how to improve capital-raising processes for companies that are already listed. He has also been central to efforts in the City to push for greater acceptance of higher executive pay and changes to governance requirements for London-listed companies, which he and many others believe have become a competitive disadvantage compared to other countries.

He says the reforms are aimed at removing “friction points” that have built up in the UK market over the past two decades. “We always knew what they were, but they were hard (to solve) and we didn’t have to address them while we were the default listing and financial center outside the US,” he says.

When the Brexit referendum in 2016 undermined the City’s position, the UK financial services sector had to “look at us with a bold and critical eye”, Austin explains.

We didn’t have to address the friction points while being the non-US default place of registration

Concern about the health of the London market was fueled by FTSE 100 groups ditching the blue-chip index in favor of overseas primary listings, including miner BHP, betting group Flutter and building materials group CRH.

New York in particular is seen as offering more liquidity and better valuations, but there is also competition from other European financial centres. Private equity giant CVC, for example, has chosen Amsterdam for its roughly €15 billion bid this year.

The drive to update the City’s rules involved company bosses, ministers, regulators and executives from the asset management, pensions, venture capital and banking sectors.

Lawyers who worked alongside them say their profession brought other important skills to the table. These include “helping to articulate the issues that need to be addressed” and “ensuring that the right information is available so that the decision-making process stands up to scrutiny,” according to James Roe, co-leader of A&O Shearman’s equity capital markets practice in United Kingdom.

Roe has fueled several aspects of recent UK rule changes, including through his work on the capital markets committee of TheCityUK, a financial and professional services industry group.

The training of lawyers means they have relevant skills in analysis, negotiation and writing, as well as wide professional networks that help them to call on experts from different sectors, points out Rachel Kent, consultant and former partner at Hogan Lovells.

Kent led a government-commissioned report last year on how to increase the quality and quantity of investment banks’ and stockbrokers’ research into UK companies.

Their research notes help investors understand companies and decide whether to back them. However, producing these reports has in many cases become economically unviable following a change in the rules on how providers could charge for their analysis. This change, now reversed in the UK after Kent’s review, has been blamed for making public listings less attractive to smaller companies.

There aren’t enough lawyers involved in this kind of public policy work, Kent says. “The lawyers are in their office drawing up contracts and financing agreements. . . We need them to do that, but we would also benefit greatly, I think, from their wider input on policy-making issues.”

Sizeable listings have remained elusive, but there are hopes for a recovery in IPO activity both in the UK and globally. Chinese fast fashion group Shein and Ebury, a payments business owned by Spanish bank Santander, are among the companies considering floating in London.

Roe expects public market conditions to improve next year. But he cautions that it is necessary to distinguish between a thaw in the IPO market, which has always been cyclical, and any positive effects of UK rule changes.

The root causes of some of the challenges facing UK public markets go back two or three decades, meaning the success of changes should only be judged over the longer term, he says.

“Therefore, it is not unreasonable to think that it would take 10 or more years for the positive impact of structural changes to take hold,” notes Roe.