Recent high profile decisions by CRH and Arm to list in the US have put the regulator under political and industry pressure to act to attract more listings to the declining London market.
The proposed changes aim to make the rules companies follow to list their shares “more effective, easier to understand, and more competitive”.
The most significant proposed change is the consolidation of the standard and premium listing categories into a new single equity category. This change attempts to address widespread criticism of premium listing requirements being overly burdensome while standard listing was perceived as an inferior option.
The new single category is generally more closely aligned with the standard listing category, suggesting a general thrust aimed at broadening investor access.
Reduced accountancy and reporting obligations
Other proposed changes to the listing rules represent a significant relaxation of the current regime.
They include reduced accountancy and reporting obligations, including the removal of the requirement for:
- financial information and revenue earning track record as a condition for listing; and
- unqualified (‘clean’) working capital statements.
In order to allow for a wider variety of business models as well as more complex corporate structures:
- the independent business and operational control requirements are to be modified; and
- the requirement for a shareholder vote to approve related party transactions including those with the controlling shareholder is to be removed.
A simpler and more flexible approach to dual class share structures (DCSS) is being proposed that includes the following features:
- enhanced voting rights can be exercised on all matters at all times;
- enhanced voting rights cease to be exercisable after 10 years;
- transfer restrictions are retained and tightened;
- enhanced voting rights shares can only be held by those setting the strategic direction of the company (ie directors); and
- voting ratio or weighting limits removed.
The requirements for compulsory shareholder vote and shareholder circulars are being removed for:
- significant transactions; and
- related party transactions.
The removal of the Sovereign Controlled Commercial Companies category and its incorporation into the single equity category is also being mooted by the regulator.
Finally, a single set of Listing Principles and related provisions would now apply to all listings.
“Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement,” Nikhil Rathi, Chief Executive of the FCA, said. “We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets.”
“While regulation plays an important part, a company’s decision on whether and where to list is influenced by many factors, so substantive change will require a concerted effort from government and industry as well,” he added.
Three-year strategy
In the wake of Britain leaving the European Union in 2020, the FCA launched a three-year (2022-25) strategy, focussed on protecting consumers from harm, setting and testing higher standards for financial services, and promoting competition and positive change. Fair value, sustainability and access were listed as key priorities.
Announcing the proposals the FCA points out that decisions by firms on where to list are not only dependent on regulation, but also on other factors such as “taxation and the availability of capital”. There is no doubt that this is correct. However, rules that are both overly complex and onerous cannot be ruled out as a contributing factor to London becoming a less attractive place for companies to raise capital. The easing of key requirements for listing will therefore likely be broadly welcomed by many key stakeholders but, as the FCA points out, some risks will now be passed to the UK investor.
The closing date for the consultation is June 28, 2023.
GRIP view
This will be a story to watch as the LSE has clearly pressured stakeholders to seek to make listing easier (on their platform).
Some additional criticisms of undermining shareholder rights and market standards may see further consequences (dual share classes being one issue). Previously one share, one vote was a foundation of the stock market.
The changes represent a form of rebalancing by the regulator, recognizing that the insistent focus on investor protection may actually have a detrimental impact in terms of making the UK market less competitive globally. But there is a trade-off involved here.
