The UK’s Financial Conduct Authority (FCA) has proposed to reform and streamline the listing rules in a bid to boost the attractiveness of the UK market for companies.
The country’s watchdog says in an official statement on Wednesday it aims to make the listing regime, the rules businesses must comply with to list in the UK ‘more effective, easier to understand and more competitive.’
The proposed changes include the replacement of its existing standard and premium listing segments with a single category for equity shares in commercial companies. If applied, the listing reform will also scrap shareholder votes on transactions such as acquisitions to reduce ‘frictions’ to companies.
The FCA’s proposed reforms come as this week the Cambridge-headquartered semiconductor and software design company Arm chose to sell its shares in the US rather than in London. Commenting on BBC Radio 4’s Today program this week, Arm’s co-founder, Hermann Hauser stated that New York ‘is a much deeper market than London’ and ‘Brexit idiocy’ has damaged the UK’s capital image.
The FCA also notes in its statement that listing in the UK has reduced by 40 percent since 2008, according to a government review.
‘London is a major international market with a deservedly good reputation globally among companies aiming to raise capital,’ says FCA CEO Nikhil Rathi.
‘Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors that are willing to set their own risk appetite and terms of engagement.’
But he notes that ‘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.’
The Financial Reporting Council (FRC) has welcomed the FCA consultation. ‘We welcome the FCA’s consultation and the potential for its proposals to increase the number of companies using our flexible and proportionate Corporate Governance Code to drive high-quality governance and reporting and improve market confidence,’ says Mark Babington, executive director of regulatory standards at FRC, in an interview with IR Magazine.
‘We also plan to consult on revisions to our code shortly to ensure it continues to meet those needs.’
The proposed reform has been welcomed by the industry, but some argue that even with the reform becoming effective, the UK would still lag the US.
‘While the FCA’s position is to allow a form of dual-class share structure in the single listing category, we note that this is still more limited than would be typical in the US where all pre-IPO shareholders would usually receive high-vote shares (the FCA’s proposal is for the high-vote shares only to be held by directors),’ says Claire Keast-Butler, partner at US law firm Cooley.
‘And there is no mandatory requirement for a ‘sunset’ provision (the FCA’s proposal is for a mandatory period of 10 years, after which the high-vote shares would convert into ordinary shares).’
The FCA consultation will run for eight weeks, with a closing date of June 28, 2023. It says it welcomes feedback and further evidence to assess the impact of its proposed changes on all affected entities.
The regulator also notes that following the assessment of the proposals put forward this week, it aims to issue a ‘further consultation’ on wider changes to its listing regime in fall 2023. Under the proposals, requirements would be focused on transparency for investors to support decision-making and help companies meet the FCA’s standards.
