FCA chief executive Andrew Bailey (pictured) said the finalised rules announced on Friday morning encourage more companies to adopt UK governance standards.
“These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing. This raises standards. This package recognises that the previous regime did not always work for these companies or their investors,” Bailey said.
When the FCA announced last July it was looking to amend existing rules, it was accused of lowering standards to entice Saudi Aramco, the $2trn Saudi Arabian oil company, to list on the London Stock Exchange. In May 2017, Saudi Arabia deputy crown prince Mohammed bin Salman, announced the country’s intention to float around 5% of the company in 2018.
The FCA said the new rules recognises that a sovereign controlled company is different from a company with a private controlling shareholder. It said there are relatively few listed companies that are state-backed, but said the new category could be helpful for companies on the path to privatisation.
Opposition
Following the publication of the finalised rules, Investment Association chief executive Chris Cummings said the rules represent a loss of hard won investor protections.
The Investment Association is calling for major equity indices to exclude companies in the new segment, Cummings said, stating UK savers should not be forced investors in companies with lower premium listing standards. He added savers must have confidence a company is run for all shareholders.
Lyxor head of ETF strategy for Northern Europe Adam Laird said index decisions would likely be taken on a case by case basis.
“On one hand, investors want to see complete indices – representing the widest set of companies. But on the other hand, there is a serious point that any listing category which permits lower standards could be more risky – and weakens standards for the future,” Laird said.
Aim shares are excluded from the FTSE All Share even though companies like Asos would be large enough to make it on to the main indices, he said.
Voting
The FCA said it had modified initial proposals to ensure directors must get separate approval from minority shareholders and to enhance Market Abuse Regime disclosures. But if minority shareholders voted against a director then the election would simply proceed in 90 days without the need for an independent vote.
The final rules removed the requirement for shareholder approval on related party transactions with the sovereign.
Cummings said: “We are pleased that the FCA has listened to investor concerns regarding independent votes on independent directors and disclosure obligations on related party transactions, but we are disappointed by the lack of a requirement for independent votes on them.”
Sovereigns would also not be required to enter a controlling shareholder agreement with the issuer, as the FCA said this would be impracticable for them. It also said investors would get enough information from the prospectus and “wider information available”.
The new category will be effective 1 July 2018.
