The Financial Conduct Authority (FCA) has unveiled an overhaul of its listings regime in an attempt to entice companies to the UK market.
The new rules, which will apply from 29 July, aim to streamline eligibility for companies to list and better aligns the UK with international markets, the regulator said.
The FCA has removed the need for shareholder votes on significant or related party transactions, and offer flexibility around enhanced voting rights such as those employed by founders and venture capital firms.
Shareholder approval for key events, including reverse takeovers and decisions to delist from an exchange, is still required.
Meanwhile, ‘premium’ and ‘standard’ listing segments have been replaced by a singular overall category for equity share listings.
“A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors,” said Sarah Pritchard, executive director markets and international at the FCA.
“That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own.
“Regulation is only part of the answer in helping the UK achieve sustainable growth. Other factors also play a significant role in influencing where a company decides to list. We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far.”
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The reforms come after two consultations with the industry since May 2023.
Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics, said there had been a “tug-of-war” between two distinct groups.
“On the one hand, many companies and their advisers want to remove what they see as needless risk aversion and red tape restricting the free flow of capital to new and growing businesses. On the other, many investors want to preserve existing shareholder protections which they see as vital to ensuring a trusted and equitable market.
“It looks like the side favouring deregulation has prevailed when it comes to designing the shape of listing regulations this time around. But it’s fair to say, the new rules represent a gamble over whether the UK can build more attractive markets by introducing features that many of the largest investors are opposed to. So, the matter is far from settled and this conversation will roll on for some time.”
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According to the UK Listing Review, the number of listed companies in the UK has fallen by about 40% from a recent peak in 2008. Between 2015 and 2020, the UK accounted for only 5% of Initial Public Offerings (IPOs) globally.
Reacting to the announcement, Chris Beckett, head of equity research at Quilter Cheviot said the FCA’s efforts to overhaul listing rules in the UK are “very admirable”.
“London has been a critical hub for financial services and having a healthy stock exchange is important for its reputation, particularly with a new government and the UK no longer part of the European Union,” he said.
“However, using the listing rules as a reason for the London market’s struggles is a bit of a red herring. The main reason for the gloomy clouds over the City is the makeup of the main indices. London is home to large, legacy industry companies, such as miners, oil and gas and financials, which have been out of favour in the past decade and show no real signs of becoming loved once more.”
Beckett added that the FCA and government clearly want to attract new businesses to help counteract the issue, but there are some challenges to this approach which could prove to be difficult to get around.
“Firstly, growth investors tend not to invest in the UK, for the reasons listed above. They tend to look to the US for these companies and as such if a business wants to achieve an attractive valuation, it too will go to America.
“Furthermore, most institutional and retail investors care very little about where the company they are buying is listed. We live in a 24/7 digital age now where you can buy companies listed in London, New York, Tokyo, Shanghai or Frankfurt at the touch of a button. Many of the companies in the FTSE 100 are global in nature too, so will naturally look to overseas markets if that is a better fit for them.
“Finally, while these reforms are a good, albeit limited, first step, we need to be careful not to lower standards too much. Encouraging businesses to list here is beneficial, and we hope these reforms will help, despite reservations, However, attracting high quality companies requires maintaining robust governance standards. Given the FCA’s mandate and actions to date, it fully understands the need to protect those standards.”
