By Lars Mucklejohn

Of Financial News

The City regulator is reviewing how investment banks handle share buybacks for U.K.-listed companies as the practice booms, Financial News can reveal.

The Financial Conduct Authority has requested information from large banks on how they structure, market and execute buybacks on behalf of their clients, according to people familiar with the matter.

FCA officials have engaged with a range of stakeholders in recent months and are also assessing how buyback practices impact the U.K.'s capital markets, the people said.

The 'multi-firm assessment' is designed to improve the FCA's understanding of the growing market for the transactions, rather than addressing specific concerns about individual banks or the broader industry, the people added.

The watchdog plans to complete its enquiries within the first quarter of 2025 and then publish its findings.

British corporates have traditionally preferred returning excess capital to investors through dividends. They paid out roughly 86.5 billion pounds ($107.55 billion) last year, excluding one-off dividends, according to data from stock transfer firm Computershare.

But the use of buybacks has grown in recent years. As analysts argued over whether British stocks were undervalued, FTSE 100 companies committed to around 57 billion pounds worth of buybacks in 2024, up from the previous two years, according to investment platform AJ Bell.

Firms typically aim to buy as many shares as possible within a set budget to reward investors and reduce share capital. Buybacks are typically more tax efficient than dividends and can support a company's share price.

However, critics argue buybacks can be used as a tool to deliver a short-term boost in a company's earnings per share and that firms should use more of the money to invest in their operations.

Listed companies often rely on investment banks to arrange buybacks by approaching existing investors off-market or on-market through an exchange.

Natixis is currently helping Shell to run a $3.5 billion program, which began last week. HSBC is working with Morgan Stanley for an up to $3 billion buyback due to finish later this month.

Injecting more life into Britain's capital markets has been a key focus of FCA reforms in recent years, including an overhaul of listing rules last summer.

Meanwhile, the U.K. government has piled pressure on financial regulators to show they are meeting their secondary objective to facilitate growth and competitiveness.

Chancellor Rachel Reeves wrote to 17 watchdogs, including the FCA, in December asking each to propose five reforms that would promote growth in the coming year.

Financial News is owned by News Corp, the parent company of The Wall Street Journal and Dow Jones Newswires.

Write to Lars Mucklejohn at lars.mucklejohn@dowjones.com

Website: www.fnlondon.com

(END) Dow Jones Newswires

February 07, 2025 03:58 ET (08:58 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.