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Equity risk premium meaning

What does Equity risk premium mean?
Equity risk premium is the additional return investors require for holding equities instead of risk‑free government bonds, reflecting higher risks such as potential insolvency, earnings volatility and uncertain dividends. In legal practice it is a key input to discount rates used in company valuation (DCF), damages assessments, shareholder and M&A disputes, competition and merger control analysis, regulatory price controls (WACC), and pension scheme investment and funding assumptions. The term is not defined in UK or Irish legislation or case law; it is a finance concept applied through expert evidence and regulatory guidance. It is measured relative to a risk‑free rate (commonly UK gilt yields in England & Wales, Scotland and Northern Ireland, and Irish or euro‑area government bonds in Ireland) and estimated using long‑run historical data, forward‑looking models or market‑implied measures. The selected ERP should be date‑specific, evidence‑based and consistent with other valuation inputs. Usage is broadly consistent across the UK and Ireland, though sector regulators (for example, the CMA, Ofgem, Ofwat, Ofcom; ComReg and the CRU) may indicate ERPs within cost‑of‑capital determinations. For pensions, trustees and actuaries references ERPs when considering expected returns, subject to statutory scheme funding requirements.
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NEWS
Financial Services: UK, EU and International Regulatory, Enforcement and Policy Highlights—5 February 2026

In this issue: UK, EU and international regulators and bodies Prudential standards Financial crime and sanctions Complaints, redress and claims management Investigations, enforcement and discipline Benchmark regulation Capital markets regulation Sustainable finance and ESG Banks and mutuals Investment funds and asset management Insurance regulation FSMA regulated pensions activity Payment services and systems Fintech and cryptoassets AI regulation in FS Dates for your diary New and updated content Financial Services Enforcement Database Daily and weekly news alerts LexTalk®Financial Services: a Lexis®Nexis community UK, EU and international regulators and bodies FCA responds to Treasury Committee follow-up on Leeds Reforms The chief executive of the Financial Conduct Authority (FCA), Nikhil Rathi, has replied to follow-up questions from the Treasury Committee regarding delivery of the Leeds Reforms. Rathi confirmed the FCA has put nine of roughly 30 reforms into effect and outlined the timetable for the remainder,...

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NEWS
UK and EU financial services weekly briefing—prudential, conduct, consumer protection, sanctions, enforcement, ESG, banks, funds, insurance, pensions, fintech/crypto, MiCA and MiFID II (6 March 2025)

In this issue: Prudential requirements Risk management and controls Financial crime and sanctions Consumer protection Conduct requirements Complaints, compensation and claims management Investigations, enforcement and discipline Sustainable finance and ESG Banks and mutuals Investment funds and asset management MiFID II Regulation of insurance FSMA regulated pensions activity Fintech and cryptoassets LexTalk®Financial Services: a Lexis®Nexis community Financial Services Enforcement Database Daily and weekly news alerts Intraday news alerts New and updated content Dates for your diary Prudential requirements CP2/25: PRA consults on leverage ratio threshold changes The Prudential Regulation Authority (PRA) has issued consultation paper CP2/25 setting out proposed revisions to leverage ratio thresholds. It plans to raise the retail deposits leverage threshold from £50bn to £70bn, aligning with nominal GDP growth since 2016. The intention is to keep major UK banks, building societies and investment firms within scope, while giving smaller firms additional...

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View the related Practice Notes about Equity risk premium

PRACTICE NOTES
UK corporate governance: risk management and internal controls—board duties, audit committee roles, reporting obligations and emerging reforms (CA 2006, UKCG Code, FCA Listing Rules, DTRs, TCFD)

The purpose of internal control Internal control exists to support the identification, handling and mitigation of risk in settings where a company’s aims, internal organisation and the broader markets in which it operates are constantly shifting, adapting to changing conditions, and the risks it encounters will evolve over time and across cycles. Although a company cannot abolish these risks, a robust internal control system is central and fundamental to managing risks that are material to achieving its business objectives and to helping safeguard shareholders’ investment interests and the company’s assets and resources. Under the Financial Reporting Council’s UK Corporate Governance Code (UKCG Code), the board of a premium listed company must establish processes to manage risk effectively, oversee the internal control framework, and define the nature and scale of the principal risks it is prepared to assume in pursuing its strategic objectives. In addition, the Disclosure Guidance and Transparency Rules (DTRs) require an issuer to make a range of disclosures about internal control and risk management systems within its...

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PRACTICE NOTES
Archived resource note: FCA LR 6 premium listing (commercial companies) eligibility (pre‑29 July 2024)—track record, independence, controlling shareholders, free float, specialist companies, and transition to UK Listing Rules

ARCHIVED: This Practice Note has been archived and is not maintained. A major restructuring of the UK listing regime took effect on 29 July 2024, removing the premium and standard listing segments and introducing a single listing category for equity shares in commercial companies. This commercial companies category is predominantly disclosure-based and sits alongside other listing categories, including the shell companies, secondary listing and closed ended investment fund categories. To give effect to the reforms, the UK Listing Rules sourcebook came into force and the Listing Rules sourcebook was revoked. For further information, see Practice Note: Reform of the UK listing regime—fundamentals. This Resource Note reflects the regime as it stood before 29 July 2024 and has been retained for reference. It brings together relevant commentary, analysis and resources to assist with interpretation and to provide practical guidance on applying Chapter 6 of the former Listing Rules that were in force prior to 29 July 2024...

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PRACTICE NOTES
Comprehensive Glossary of Property Law and Practice (England and Wales)

FORTHCOMING CHANGE: The Renters’ Rights Act 2025 The Renters’ Rights Act 2025 obtained Royal Assent on 27 October 2025. For guidance on the Act’s effect on residential tenancies in England, see Practice Note: Renters’ Rights Act 2025—key provisions... A Absolute title A category of title available for registered land. Absolute title is the strongest class that can be granted; it denotes that, apart from matters on the register and any overriding interests, nothing affects the registered proprietor’s freedom to deal with the land... Abstract (of title) A certified summary, prepared by a lawyer, setting out the contents of the title deeds for a particular property... Acquiring authority See Compulsory purchase... Act of Parliament Legislation passed by both Houses of Parliament in the form of a written Bill and given Royal Assent. Sometimes called primary legislation. See also Secondary legislation... Adoption The legal process by which a highway in private ownership becomes a highway maintainable at the public expense....

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