Introduction
On 3 May 2023, the Financial Conduct Authority (FCA) published a consultation paper seeking views on a proposed reform to the UK listing rules to help attract a wider range of companies, encourage competition and improve choice for investors. The consultation paper follows the publication of a discussion paper in May 2022, which sought views on several possible reforms to the UK listing regime, and is part of a wider debate on reforming UK capital markets which includes the UK Secondary Capital Raising Review published in July 2022.
The stated objective of the changes is to make the UK listing regime more effective, easier to understand and more competitive. The UK listing regime has been seen by some issuers and advisers as too complicated and onerous. The proposals would introduce a major change to the listing rulebook, including replacing its existing Standard and Premium listing segments with a single category for equity shares in commercial companies. The requirements would be focused on transparency for investors to support decision-making and sponsor oversight at the point of listing to ensure companies can meet the FCA’s standards.
It is proposed that a single equity category would remove some of the eligibility requirements that currently apply to a Premium listing, be more permissive on dual class share structures, and remove mandatory shareholder votes on transactions (such as acquisitions) to reduce frictions to companies pursuing their business strategies.
The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.
Summary of key changes
The proposed key changes include:
- A single listing segment for equity shares in commercial companies.
- Removal of eligibility rules requiring a three-year financial and revenue earning track record as a condition for listing and the requirement for a ‘clean’ working capital statement.
- Modified and simplified eligibility and ongoing rules requiring that a company has an independent business and has operational control over its main activities, to create a more permissive approach to accommodate a range of business models and corporate structures.
- Removal of the obligation for listed companies to conclude a shareholder agreement with a controlling shareholder. Instead, to ensure flexibility, a “comply or explain” and disclosure-based approach would require companies to explain why there is no controlling shareholder agreement and for this to be discussed in the risk factors in the prospectus.
- A more permissive approach to dual class share structures.
- Removal of compulsory shareholder votes and shareholder circulars for significant transactions.
- Removal of compulsory shareholder votes and shareholder circulars for related party transactions, including where a controlling shareholder is involved. The proposals will require full particulars of the related party and of the nature and extent of the transaction to be announced. The announcement must also include a statement by the board that the related party transaction is fair and reasonable so far as the security holders of the company are concerned and that the directors have been so advised by the sponsor.
- Potential merger of the rules for Sovereign Controlled Commercial Companies into the single category for equity shares, subject to modifications if required.
- A single set of Listing Principles and related provisions.
Key provisions intended to remain in place:
- A modified sponsor regime to support companies at application stage and for certain disclosure or reporting obligations. Under the new regime, all companies proposing to list on the London Stock Exchange’s Main Market would be required to engage a sponsor for admission and, following admission, would engage a sponsor in respect of certain transactions.
- Other controls on related party transactions in the existing regime, including the requirement for a fair and reasonable opinion for larger transactions.
- Rules controlling the discount at which further shares can be offered where they are not offered pre-emptively to shareholders and rules relating to share buy-backs.
- Rules protecting shareholders from the cancellation of a listing without a takeover offer or approval by a super-majority of shareholders.
- Separate listing categories and rules for equity shares issued by investment vehicles, including closed-ended investment funds (although the FCA is exploring commensurate changes to those proposed for equity shares in commercial companies), open-ended investment companies, SPACs and potentially for other types of investment companies and secondary listings in London of overseas listed companies.
- Separate listing categories and rules that currently exist for non-equity securities including other share types such as preference shares and deferred shares that are currently eligible to list under the standard listing shares category.
These changes are not proposed to affect the rules applicable to companies listed or proposing to list on the AIM market or on Aquis Stock Exchange.
Impact on smaller and dual listed companies
The proposed single segment regime would reduce the regulatory burden that currently applies to the Premium segment and, as such, is likely to appeal to a broader range of companies than the current Premium segment does. With the effective removal of the Standard segment, however, the proposed single segment may prove inaccessible for smaller companies. Those companies may choose to list on AIM or on Aquis Stock Exchange. It remains to be seen whether the proposed changes will result in an inflow of listing transactions on those markets.
The Standard segment has in recent years been a successful listing venue for overseas listed issuers seeking a secondary listing in the UK and, whilst the consultation paper is light on detail, it is clear that the FCA is considering a separate listing category for such companies, which we assume will be “lighter touch” than the rules in the single listing segment for equity shares in commercial companies.
The consultation is open until 28 June 2023.
