The Treasury, the Bank of England (Bank) and the FCA will be convening an industry working group to facilitate investment in productive finance.
Investment in productive finance refers to investment that expands productive capacity, furthers sustainable growth and can make an important contribution to the real economy. Examples of this include plant and equipment (which can help businesses achieve scale), research and development (which improves the knowledge economy), technologies (for example, green technology), infrastructure and unlisted equities related to these sectors.
Productive finance investment can generate desirable outcomes for investors. It also provides various challenges, including that it may necessitate long-term commitments from investors in some cases.
The economic uncertainty created by coronavirus (Covid-19) means that it is now more crucial than ever that a long-term investment culture is fostered that ensures good outcomes for consumers, while aiding economic recovery.
The working group will build upon work already undertaken to investigate the challenges and potential barriers to investment in productive finance assets in the UK, including the Treasury’s Patient Capital Review in 2016 and the Asset Management Taskforce’s UK Funds Regime Working Group’s Long-Term Asset Fund (LTAF) proposal in 2019.
The working group’s mandate will be to agree the necessary foundations that could be implemented by firms and investment platforms, to facilitate investment in long-term assets by a wide range of investors.
The working group will:
- Propose solutions for barriers to investment: to be implemented by industry participants. This includes considering potential fund structures, such as an LTAF, to invest viably in long-term assets, and that meet the demands of wide range of investors, including defined contribution pension funds; and
- Propose a roadmap, timetable and set of actions: to implement those solutions.
The working group will be co-sponsored by the Economic Secretary to the Treasury; Andrew Bailey, Governor of the Bank; and Nikhil Rathi, Chief Executive of the FCA. The membership will be drawn from a diverse set of market participants, including but not limited to banks, asset management firms, pension funds and insurance companies, corporates, infrastructure firms, wealth managers, investment platforms and trade associations representing relevant sectors and markets.
Membership will be by invitation from the Treasury, the Bank and the FCA who will determine the final membership against a set of transparent criteria, including market footprint in UK, relevance to the mandate of productive finance, contribution to overall representativeness to the group, and engagement with productive finance issues. Further details will be announced in coming weeks.
Background
- Patient Capital Review: November 2016
- Asset Management Taskforce: October 2017
- IA UK funds regime working group: 6 June 2019
- The Financial Stability Report of August 2020, Box 4 Productive finance
