The post below was first published on our Corporate notes blog:
The FCA has today proposed a revolutionary restructuring of the UK listing regime. Its consultation paper (CP 23/10) sets out a blueprint for the new 'UK listing'. While the genesis of the rule changes is the desire to attract more companies in London, they will have a significant impact on existing listed companies.
In a change from the FCA's previously announced reform approach (read more on the background here), it has abandoned the idea of a split between mandatory and supplementary continuing obligations in favour of a true single segment with one set of continuing obligations for normal commercial companies. As part of the new UK listing regime:
- shareholder votes will no longer be required for significant/Class 1 transactions;
- shareholder votes will no longer be required for related party transactions;
- a modified sponsor regime will remain a cornerstone of investor and market protection; and
- there will be significant changes to the eligibility requirements for new prospective IPO candidates, moving to a disclosure-based rather than rules-based regime.
A two page summary with further details is available below.
FTSE Russell, which maintains the FTSE indices, has not yet commented on the FCA's proposals and in particular what they would mean for index inclusion going forwards.
The FCA has said that following this consultation (which closes on 28 June 2023) it expects to publish a second paper containing draft rules in the autumn, and plans to accelerate its final rule making processes. For existing listed companies, transitional provisions will be made in due course.
In our view, this is an important step towards improving the competitiveness of the UK market from a regulatory perspective and should have the dual benefits of making the UK a more attractive listing destination and improving the competitiveness of UK listed companies in international M&A processes. However, challenges remain, in particular as regards the depth of liquidity, perceptions on valuation gaps, extent and quality of research coverage and consistency of investor appetite for IPOs in the UK (especially from UK investors). These will also need to be addressed if the UK is to materially improve its competitive position as a listing venue. In addition, the loss of established protections, particularly around related party transactions, will concern some investors and, taken together with the other relaxations on eligibility (which are being modified to a disclosure-based approach) and on the separate prospectus and secondary issuance reforms (which will enable significant undocumented capital raises), will decisively place the emphasis on investors to manage risk. The FCA will also need to have the powers and capacity to ensure the new disclosure-based regime is adhered to, as well as deal with rule breaches and ensure that the high standards of market conduct that attract investors to the London market are retained. All eyes will now turn to investors for their responses to the proposals given that the FCA has gone down a radical route.
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