Reviving London's Markets: Can Regulatory Overhaul Stem the Decline?

The London Stock Exchange (LSE) has long been a global financial hub, but its dominance is under threat. Over the past decade, the number of new listings has dwindled, while rivals like NASDAQ and Hong Kong's exchange have surged. Compounding the challenge is the UK's post-Brexit regulatory uncertainty, U.S. policy shifts, and a sluggish equity market recovery. Yet, the Confederation of British Industry (CBI) has outlined a bold agenda to revive UK equity markets through targeted regulatory reforms. This analysis explores whether these efforts can reverse the LSE's decline—and where investors might find opportunity.

The Decline and Its Drivers

The LSE's struggles are stark. reveals a 40% drop in IPOs since 2020, compared to a 15% rise in Hong Kong and a 25% increase in NASDAQ. Contributing factors include a fragmented regulatory landscape, outdated tax systems, and rising energy costs. The CBI's 2024-2025 policy agenda directly addresses these issues, offering a roadmap to restore competitiveness.

Regulatory Overhaul: A Foundation for Liquidity

At the core of the CBI's strategy is overhauling the UK's regulatory framework to boost market transparency and liquidity. The Financial Conduct Authority's (FCA) consultation on the Systematic Internaliser (SI) Regime (CP25/20) is a pivotal step. By removing barriers to matched principal trading and expanding Organised Trading Facilities (OTFs), the reforms aim to attract institutional investors and reduce market fragmentation. If implemented, this could make UK equities more appealing to global capital.

However, success hinges on speed. The FCA's delayed timeline—final proposals expected in 2026—risks further erosion of investor confidence. The CBI's push for predictable post-2025 tax policies, including a stable corporate tax rate, adds another layer of stability. A shows underperformance, but reforms could reverse this trend.

Tax Reform: Fixing the Broken Business Rates System

The CBI's most contentious recommendation targets England's business rates, which penalize growth by taxing properties based on outdated valuations. The proposed progressive slice-based taxation would reward expanding firms while curbing tax hikes on National Insurance Contributions (NICs). This is critical: higher NICs deter hiring, stifling the very companies that fuel equity markets.

Investors should monitor the 2025 Autumn Budget closely. A failure to adopt the CBI's tax framework could see UK equities continue to lag global peers. Conversely, a shift toward stability would make sectors like financial services and technology—which rely on skilled labor—prime beneficiaries.

Green Finance: The UK's Competitive Edge

While global competition looms, the UK has a unique advantage in green finance. The CBI's Mission Control initiative aims to fast-track net-zero infrastructure projects, leveraging public-private partnerships and green taxonomies. With surging by 30%, sectors like renewable energy, smart grids, and carbon capture are ripe for investment.

The Growth and Skills Levy, replacing the outdated Apprenticeship Levy, further supports this transition by funding sector-specific skills programs. For investors, this signals long-term opportunities in clean energy firms and sustainable tech startups, which could list on the LSE as reforms take hold.

Fintech Innovation: A New Engine for Growth

The CBI's collaboration with Ireland's Central Bank on fintech regulation—including sandbox programs and anti-money laundering (AML) measures—hints at a broader strategy to position the UK as a fintech leader. While skepticism remains about unregulated crypto-assets, the EU's MiCAR framework provides a template for balanced innovation.

For investors, this points to opportunities in regulatory-compliant fintech platforms and digital asset managers that align with evolving standards. The Access to Cash Bill 2024, now law, also ensures a hybrid financial system, reducing risks for cash-reliant SMEs—a critical underpinning for broader market health.

Global Competition and U.S. Uncertainty

The UK's reforms must counteract U.S. policies like the Inflation Reduction Act, which offers subsidies to domestic industries. The CBI's emphasis on public procurement reforms—including risk-sharing contracts and innovation-focused procurement—aims to leverage the UK's £400bn public spending to support high-growth sectors. This could create domestic champions in AI, biotech, and advanced manufacturing, reducing reliance on foreign markets.

Investment Strategy: Where to Look

1. Green Transition Plays: Companies in renewable energy (e.g., offshore wind developers) and infrastructure (e.g., smart grid tech) stand to benefit from Mission Control and green taxonomies.
2. Fintech Innovators: Firms compliant with EU-style regulations, such as digital payment platforms or robo-advisors, may see LSE listings accelerate.
3. Regional Growth Sectors: Invest in firms tied to devolved regions (e.g., Scotland's energy sector, Wales' tech hubs) where CBI's localized policies create targeted growth.
4. Engage Early: Participate in FCA consultations (by the Sept 10 deadline) to influence outcomes.

Conclusion

The LSE's decline is reversible, but only if the CBI's reforms are executed swiftly and cohesively. While global competition and U.S. policy shifts pose headwinds, the UK's focus on green finance, fintech innovation, and tax stability creates a compelling narrative for long-term investors. Those willing to navigate near-term uncertainty may find the next wave of undervalued equities emerging from these reforms. The question is no longer whether the UK can regain its edge—but whether investors will act before others do.