Introduction
On 20 December 2023, the FCA published a consultation paper (CP23/31), with detailed proposals on the UK’s new listing regime. This follows the FCA’s consultation launched in May 2023, which sought views on what the proposed new regime could look like. The proposals aim to create a simpler, more disclosure-based listing regime, with the objective to help boost UK growth and competitiveness by making the UK’s listing regime more attractive to a wider range of companies, so they list and grow here.
The proposals keep the key concept that a single listing category of ‘commercial companies’ would be created for equity share listings, removing the existing ‘premium’ and ‘standard’ listing segments. The proposal to move to a more disclosure-based regime – one that focuses on putting sufficient information in the hands of investors, to allow them to choose how to invest and to influence company behaviour – is also retained. As such, the FCA is suggesting disclosures for significant transactions while keeping sponsor scrutiny of related party transactions, rather than the current mandatory votes. Shareholder approval for key events such as reverse takeovers and de-listing would remain.
Given the nature of these reforms, the FCA proposes to create a completely new ‘UK Listing Rules’ sourcebook (UKLR). The proposals set out the first tranche of the new rulebook, which focuses on the UKLR underpinning new ‘commercial companies’ category. The second tranche for other categories and remaining provisions impacting all issuers is expected to be published later in Q1 2024.
Key changes
The proposed key changes include:
‘Commercial companies’ category - eligibility and continuing obligations
- Listing requirements for historical financial information, revenue track record and clean working capital statements will be removed, though prospectuses will still require disclosure of financial track record up to three years and a working capital statement.
- Sponsor will be required for new applicants and to provide declarations, similar to existing declarations, including that an issuer has met its prospectus obligations and has a reasonable basis for the working capital statement within it.
- Eligibility and ongoing rules requiring that a company has an independent business and has operational control over its main activities will be removed, but the requirement for independence from controlling shareholder via written controlling shareholder agreements and maintaining certain related voting controls will remain in place.
- Issuers will be permitted to have dual/multiple class share structures at admission. Enhanced voting rights would only be held by specified persons, but without mandated time-based sunset clauses, while retaining voting restrictions on certain matters, including dilutive transactions and cancellation of listing.
‘Commercial companies’ category - Continuing obligations
- Significant transactions will require no prior shareholder vote, but enhanced market notifications will be required where a threshold of 25% under any class test is reached. The profits test will be removed and new guidance on what constitutes ‘ordinary course of business’ will be provided.
- Enhanced market notifications regime will be introduced for transactions where a threshold of 25% under any class test is reached, intended to provide key information including financial information, but not mandating working capital statements or re-stated historical financial information.
- Related party transactions will require market notification, a sponsor’s fair and reasonable opinion at 5% or higher under any class test, and board approval – a position similar to the requirements currently in place under the AIM Rules for Companies.
- Reverse takeovers will continue to require an FCA approved circular and prior shareholder approval.
- Annual reporting will require comply or explain disclosure against the UK Corporate Governance Code (UK CGC), reporting on climate (TCFD) and diversity, and otherwise maintaining most premium listing annual disclosures – it is acknowledged that an issuer may sometimes be able to explain non-compliance with the UK CGC by setting out how it complies with an alternative corporate governance code, but the FCA comments that it “would expect an alternative code to be credible and still achieve the same principles of good corporate governance as set out in the UK CGC”.
Transition category
- A new ‘transition category’ will be established for existing commercial companies that are issuers of standard listed shares (who do not fall within the new international secondary listing category) based on the current rules for standard listed shares. This category will be closed to new applicants and to transfers from other categories. The proposed transition category would have no end date at the point of implementation and so there will be no deadline for issuers to transfer out of the category. Instead, they can apply to transfer to the commercial companies category when and if they are ready and eligible to do so. The FCA proposes a modified transfer process to encourage eligible issuers within the transition category to move to the commercial companies category, the shell companies category or the international secondary listing category. As such, the numbers of issuers in the transitional category is expected to decline over time. The FCA will keep the transition category under review and may seek to wind it down in the medium term, subject to consultation, if few issuers remain and the category is no longer considered necessary.
- It is proposed that, if a transition category issuer seeks to undertake a reverse takeover, and wishes to retain a UK listing, then upon completion, the enlarged entity would need to re-apply to list. This application would have to be to an open listing category, such as the commercial companies category, subject to meeting the relevant eligibility requirements.
Closed-ended investment funds
- The rules will be based on existing obligations. The requirement for shareholder votes on material changes to investment policies, management fee changes and certain related party transactions will be retained. ‘C shares’ will be able to list within this category where such shares carry voting rights prior to conversion.
Shell and SPACs category
- The FCA proposes to create a new listing category for equity shares for SPACs and other shell companies, to be called the ‘shell companies category’. This category would be broadly based on the current standard listing requirements, but with tailored modifications and additions, including the existing conditions, that enable large SPACs to avoid suspension if they have implemented certain investor protections.
- A sponsor will be required at admission, for further issues of shares, for transactions requiring shareholders’ approval, for applications to transfer to this category from another category and to support a reverse takeover that the SPAC will be required under the UKLR to carry out within 24 months of the admission of the issuer to the new category.
International secondary listing
- This new category is designed for non-UK incorporated companies with more than one listing where ‘primary’ listing is on a non-UK market. This category replicates the standard listing rules with targeted ongoing/continuing provisions tailored to ‘secondary’ listing.
- Detailed eligibility criteria are proposed to include, among other things, the following:
- the applicant must not be a UK incorporated company;
- the applicant must have equity shares admitted to trading on an overseas regulated, regularly operating, recognised open public market;
- the applicant must be subject to the rules of the market applicable in that overseas jurisdiction without exceptions or carveouts;
- the applicant’s place of central management and control must be located in either its country of incorporation or place of its primary place of listing; and
- the overseas market on which the applicant’s shares are admitted should be subject to oversight by a regulator that is a signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU) and/or the applicant should be subject to direct oversight by such a regulator. Current signatories to the MMOU include, among others, Alberta Securities Commission (ASC), British Columbia Securities Commission (BCSC), Ontario Securities Commission (OSC), Australian Securities and Investments Commission (ASIC) and Israel Securities Authority (ISA).
- An issuer in this category would need to maintain these eligibility requirements to remain eligible following listing, i.e., these will also be continuing obligations.
Non-equity and non-voting equity, and other categories
- Discrete categories for non-equity shares (including preference and deferred shares) and non-voting equity shares, certificates representing shares (including depositary receipts), debt securities, securitised derivatives, and warrants and miscellaneous instruments will be retained with only consequential or minor changes from existing requirements.
Sponsors
- The sponsor regime will support commercial companies, SPACs, other shell companies, and closed-ended investment funds at application stage and on reverse takeovers.
- Sponsors’ ongoing role will be reserved to further issuance listing applications with a prospectus, sponsor fair and reasonable opinions for related party transactions, or where issuers seek guidance, modifications or waivers to FCA rules (including on class tests).
Impact on smaller and dual listed companies
The proposals are a positive development, in particular, in that they reduce the regulatory burden that currently applies to the ‘premium’ listing segment, which would now be likely to appeal to a broader range of companies.
It is particularly encouraging to see that issuers currently listed in the ‘standard’ listing category will not face a ‘cliff edge’ under the FCA’s proposals, but can continue to be listed in the ‘transitional’ category, substantially under the same rules that apply to them today. Importantly no end date is currently proposed to apply to this category, at least not in the short to medium term.
A further welcome development is the introduction of the separate international secondary listing category for dual listed issuers, which would retain the “lighter touch” rules, based on the existing ‘standard’ listing rules with targeted continuing provisions. The ‘standard’ segment has in recent years been a successful listing venue for dual-listed issuers and it is good to see that such issuers would still be able to list in the UK, under rules that would be broadly consistent with the existing rules.
With the effective removal of the ‘standard’ segment, the proposed ‘commercial companies’ category may prove inaccessible for smaller new issuers. Those companies may choose to list on AIM or on the Aquis Stock Exchange, whose existing rules are not impacted by the incoming changes.
Next steps
The consultation period will be open until 22 March 2024. By way of exception, comments on proposals regarding sponsor competence are to be provided by 16 February 2024. Subject to responses, the FCA will then aim to publish the final UKLR at the start of the second half of 2024. The FCA intends to have a very short period between publication and implementation of the new UKLR, subject to feedback.
If you have any questions, please get in touch with Orit Rioumine Gold or Nigel Gordon from Fladgate's capital markets team.
