FCA, Treasury and Bank of England launch 'productive finance' working group

The Treasury, Bank of England, and Financial Conduct Authority (FCA) have announced plans to convene an industry working group, which will aim to facilitate greater investment in ‘productive finance’.

Productive finance refers specifically to investment that expands productive capacity, furthers sustainable growth and can make an “important contribution” to the real economy, such as research and development, green technology, and infrastructure.

In a joint statement, the organisations emphasised that productive finance can generate “desirable outcomes” for investors, although there are various challenges, such as necessitating long-term commitments from investors in some cases.

However, it emphasised that the pandemic had made it “more crucial than ever” to foster a long-term investment culture that ensure good outcomes for consumers whilst aiding economic recovery.

As such, the working group will investigate the challenges and potential barriers facing greater investment in productive finance assets in the UK, building upon 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.

It will look 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, with specific reference made to ensure suitability for defined contribution (DC) pension schemes.

It will also propose a roadmap, timetable and set of actions required to implement those solutions.

The working group will be co-sponsored by The Treasury economic secretary, the Bank of England governor, Andrew Bailey, and FCA chief executive, Nikhil Rathi.

Members will be drawn from a set of market participants, including banks, asset management firms, pension funds and insurance companies, wealth managers and corporates.

Membership will be by invitation and will be determined against a set of transparent criteria, including market footprint in UK, relevance to the mandate of productive finance and engagement with productive finance issues.

The working group follows the government's recent financial services update, which confirmed plans to have the UK's first LTAF launched "within a year" to encourage investment in long-term illiquid assets and aimed to place the UK at the "forefront" of green finance.

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