In-house lawyers are lobbying against moves to shake-up regulation of share offerings. Alex Aldridge reports

The decision to split the Financial Services Authority (FSA) between the Bank of England and a new Consumer Protection and Markets Authority (CPMA) was greeted unenthusiastically by lawyers, many of whom questioned the need for such upheaval given the FSA's improved performance over the last couple of years.

Now a further plan to extract the UK Listing Authority (UKLA) from the FSA and relocate it within the Financial Reporting Council (FRC) is generating another wave of discontent.

London Stock Exchange (LSE) company secretary Lisa Condron – a former Wragge & Co lawyer – is among those leading opposition against the proposal, which was recommended by the Treasury in its July consultation paper on changes to UK financial regulation.

She argues that the underlying logic of putting all the financial regulation of companies in one place is flawed. "The UKLA is simply not a natural fit with the FRC. It would be far better to have it as a part of the CPMA," she says, echoing the views of her chief executive, Xavier Rolet, who has come out strongly against the plan, claiming that combining the UKLA and FRC could "durably and severely damage the competiveness" of London.

Condron cites two main reasons supporting her argument. The first is that the proposal ignores the fact that the UKLA's role is wider than regulating the companies' conduct during public offerings. She comments: "A large proportion of the transactions the UKLA supervises involve debt and sovereign wealth, meaning the UKLA has much more of a markets and securities supervisory role – in essence it's a supervisor of primary markets."

As a result, the UKLA operates in "real time", whereas the FRC – which is principally charged with handling corporate governance matters – works on more of a post-event basis. Putting the two together could change the culture of the UKLA, potentially making it less efficient, Condron warns.

Second, she highlights the fact that the CPMA will have the UK's only vote on the European Securities and Markets Authority, meaning if the proposal goes ahead the UKLA will have to rely on second-hand lobbying to press its case in Europe. "The CPMA's primary focus under the proposals would be secondary market regulation. So where would the voice for the initial public offering market be?" she asks.

Other in-house lawyers Legal Week spoke with expressed a similar view. Peter Kennerley, director of legal affairs and company secretary at power supply business Aggreko, thinks the proposed changes would be "inappropriate". He says: "The UKLA is essentially a markets regulator, so it makes sense for it to be within the CPMA rather than as part of a much more policy-focused body like the FRC."

Meanwhile, Eurasian Natural Resources Corporation general counsel and company secretary Randal Barker thinks combining the UKLA and the FRC would "make things a little messy." He believes that the effect of separating primary and secondary market regulation would generate more hassle for general counsel.

"Even on a rights issue, which on the surface appears wholly about primary markets, there is always some secondary market activity going on, such as trading in the aftermarket, stabilisation of the share issue and immediate market disclosure issues. Having just one regulator to deal with on these matters is a more efficient system," he says.

Private practice lawyers are also concerned about the hassle the move could lead to. "It's yet a further disruption," says Robert Finney, head of financial markets and regulation at SNR Denton. "You can rationalise supervisory structures in various ways, but for me it's more important to keep market regulation together than to create a single, inevitably domestic UK-focused, corporate regulator."

For Vanessa Knapp (pictured), a consultant specialising in corporate law, mergers and acquisitions at Freshfields Bruckhaus Deringer, the concern is not so much short-term upheaval, but what could happen a few years down the line. "If the changes happen, it appears that the people at the UKLA would move over directly to the FRC, so you'd be dealing with the same individuals. However, as time goes by the concern is that their detachment from the CPMA will cause them to become out of touch with the markets," she says.

The consultation period on the mooted changes will close Monday (18 October).

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Breaking up the FSA: Changes so far

Under the changes announced by chancellor George Osborne in his Mansion House speech in July, the micro-prudential regulation previously carried out by the Financial Services Authority (FSA) will be transferred to a subsidiary of the Bank of England, the Prudential Regulation Authority.

It will be charged with day-to-day supervision of financial institutions. Meanwhile, the Bank's nominal macro-prudential role in policing market risk will be beefed up and housed within a newly-created Financial Policy Committee.

The remaining markets and consumer divisions of the FSA will operate as part of a new Consumer Protection and Markets Authority, which may also include some elements of the organisation's enforcement function. This body will act as a single conduct regulator for both retail and wholesale firms. The rest of enforcement is seen as likely to merge with bodies including the Serious Fraud Office, the Serious Organised Crime Agency and parts of The Office of Fair Trading to form a new Economic Crime Agency.

The aim is to complete the transition by 2012, with an interim shadow structure set to be brought in at the FSA by January next year. Current chief executive Hector Sants is to stay on to oversee the changes.