FCA listing rules reform: A ‘necessary change’ but with a shareholder rights red flag

Current ‘premium’ and ‘standard’ listing segments to be replaced by a single category


The Financial Conduct Authority (FCA) has launched a proposal to reform listing rules in an attempt to help reinvigorate the UK stock market.

Among the reforms, the regulator has called for the current ‘premium’ and ‘standard’ listing segments to be replaced by a single category. It has also proposed the removal of requirements for shareholders to vote on transactions such as acquisitions.

The FCA said the changes would improve ‘the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors’. A consultation period on the reforms will last for eight weeks, ending on 28 June.

Nikhil Rathi, chief executive of the FCA, said: “London is a major international market with a deservedly good reputation globally among companies aiming to raise capital. 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.

“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. We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets.”

‘Necessary change’

Since 2008, companies UK listings have reduced by 40%, according to the UK Listing Review. Many firms have chosen instead to list in New York, such as British tech firm Arm.

Nigel Gordon, capital markets partner at London law firm Fladgate said: “I would cautiously welcome the proposed changes. The recent spate of companies moving from London to Nasdaq (or going directly to Nasdaq) shows that change is necessary. The change to a single category for equity shares seems unnecessary, but the other proposals can only improve the attractiveness of London.

“However, in my view, a decision about eligibility much earlier in the listing process, and the implementation of the recommendations of the UK Secondary Capital Raising Review about when a prospectus is required and fundraising structures would be equally, if not more, beneficial. It would also help to make London more appealing if AIM could be reformed as that market has become too costly and inflexible for junior companies.”

Eroding shareholder rights

Delving deeper into the proposals, industry commentators have expressed concerns the reforms may lead to a weakening of shareholder rights despite an acceptance of a need for change to the current listing rules.

Richard Wilson, Interactive Investor CEO, said: “We strongly support the principles behind listing rule reform to make the UK more competitive, but eroding shareholder rights risks undermining market standards, and this is not the right answer.

“Dual-class structures, which come with differential voting rights, erode shareholder rights. Distorted rights distort governance and accountability. When company founders seek external capital from shareholders, as equity owners they must respect their shareholder rights. One share, one vote is a bedrock of shareholder democracy and we are concerned to see that the spectre of dual share classes, which we have actively lobbied against, still looms large.”

Wilson also described the proposed removal of a shareholder vote on transactions as ‘another major red flag’.

He added: “We would also be concerned if the FCA were looking to sidestep responsibility for conducting due diligence as part of it acting as UK Listing Authority. It will be interesting to see which companies qualify for inclusion in FTSE trackers once the ‘premium’ definitional point is dropped.”

Hargreaves Lansdown (HL) head of government affairs and public policy Anne Fairweather added that while the platform welcomes the proposals, it believes retail investors should be at the heart of any reforms.

She said: “A focus on disclosure and engagement of investors, rather than reems of paper in a prospectus which aren’t read, is welcome. Retail investors need to understand the companies they invest in and be assured that they meet the FCA’s standards. Existing investors also need to be sure that they are protected during secondary fund raisings.

“We will examine the proposals to ensure they meet these aims. When considering the removal of investors’ rights, for example with the proposal on acquisitions, there needs to be consideration on how this impacts those investment decisions, as well as the listed company’s desire to make changes. We look forward to considering how these needs are balanced in the proposals.”

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