FCA looks to change UK listing rules in competitiveness boost

Jul 05, 2021
Proposals include plans to allow dual-class share structures and changes to minimum free float

The UK’s Financial Conduct Authority (FCA) has launched a consultation on proposed reforms designed to boost the competitiveness of the UK’s listing regime.

The changes include the introduction of a dual-class structure ‘in the premium listing segment’ as well as reducing the required free float from 25 percent to 10 percent ‘in certain circumstances’.

‘Allowing a targeted form of dual-class share structures within the premium listing segment [will] encourage innovative, often founder-led companies onto public markets sooner, and so broaden the listed investment landscape for investors in the UK,’ says the FCA.

It adds that ‘more companies raising capital on public markets at an earlier stage in their life cycle means more opportunities for investors to share in the returns of those companies as they grow.’

The FCA is also proposing increasing the minimum market capitalization (MMC) threshold for both the premium and standard listing segments for shares in ordinary commercial companies from £700,000 to £50 mn ($970,000 to $70 mn). ‘Raising the MMC will give investors greater trust and clarity about the types of company with shares admitted to different markets,’ it says.

The FCA proposal consultation follows the recent UK Listing Review, chaired by Lord Jonathan Hill, and the Kalifa Review of UK FinTech. Addressing many of the same issues, the FCA says its planned changes ‘respond to the changing nature of companies coming to market’, adding that the changes would broaden investor access to companies in higher-growth sectors.

Despite the controversial nature of dual-class share structures, already allowed in the US and often used by founder-owners of tech companies to retain control, the FCA says it ‘continues to prioritize high standards of corporate governance and shareholder protections.’

As part of the consultation, the FCA is also seeking feedback on the overall structure of its listing regime and ‘whether wider-reaching reforms could improve the longer-term effectiveness of the regime.’

Clare Cole, director of market oversight at the FCA, says in a statement that the regulator is ‘acting assertively to meet the needs of an evolving marketplace’.

‘Our proposals should result in a wider range of listings in the UK and increased choice for investors while we continue to ensure appropriate levels of investor protection,’ says Cole. ‘They are intended to encourage high-quality companies to list earlier, and so increase the possibility of a wider investor base being able to access growth in these companies.’

The FCA consultation will run for 10 weeks, with a closing date of September 14, 2021. Subject to consultation feedback and FCA board approval, the regulator says it will seek to make relevant rules before the end of 2021.

In the statement announcing its consultation, the FCA points to numbers from the UK Listing Review, which show that the number of listed companies in the UK has fallen by around 40 percent from the 2008 peak. Between 2015 and 2020, the UK accounted for only 5 percent of IPOs globally, though today law firm Pinsent Masons said Q1 had been the best quarter for London IPOs in almost 15 years.

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