The FCA’s new UK listing rules: What do they mean for IROs?

In my years as an IR professional, I’ve seen my fair share of regulatory changes but the shake-up to the UK’s listing regime that kicked in on July 29, 2024 is a game changer. This isn’t just another tick-box exercise; it’s a fundamental shift that’s set to redefine how UK-listed companies operate.

The Financial Conduct Authority (FCA) has given us a new playbook. Out go the old premium and standard listings and in comes a simplified category system with relaxed transaction rules.

Why does this matter? In my view, these changes are quite profound for UK-listed companies.

One of the FCA’s primary objectives was to boost London’s global competitiveness as a venue for IPOs, which could attract a whole new breed of companies to our market, as well as more of them. That may make little difference to companies already listed here; for them, the biggest impact looks set to be the relaxation of transaction rules and a number of governance issues.

One of the most interesting aspects to watch will be acquirors, which will be spared a lot of time-consuming processes, including the need for shareholder consent for larger acquisitions. This should level the playing field for UK acquirors competing with international ones. Firms I’ve worked for have suffered as acquirors: I’ve seen the length of time and the process involved to secure shareholder approval putting them at a disadvantage versus their non-UK peers that made for more attractive acquirors.

But the new rules also present some challenges, particularly in maintaining the high governance and transparency standards UK-listed companies are known for. I could imagine some fraught conversations between management and shareholders as the new rules provide scope for interests to diverge.

The key changes

1. New equity share (commercial companies) category

• The previous premium and standard segments of the main market have been merged and are replaced with a new category: equity share (commercial companies) or ESCC.
• A ‘transition category’ has been designated for companies previously listed under the standard segment that are ineligible for any other category under the new listing rules. These companies may continue operating under the old rules, for a period to be determined, before becoming eligible for ESCC categorization.

2. Relaxed transaction rules

• Transactions that have previously qualified as class 1 no longer require the publication of a shareholder circular or shareholder approval.
• There is a simplified announcement process for significant transactions and a reduced disclosure requirement for smaller deals.

3. Eased related-party transaction requirements

• No shareholder circular or approval needed for large related-party transactions.
• There is an increased threshold for ‘substantial shareholder’ definition.

4. More flexible dual-class share structures

• There are no specified voting limits.
• Enhanced voting rights are allowed for up to 10 years for certain shareholders.

5. Simplified eligibility criteria

• There is no need for three years of financial history or revenue track record.
• The working capital statement requirement has been removed.

What should IROs do?

1. Review and update disclosure processes

The new regime should prompt IROs to conduct a thorough audit of current disclosure procedures, identifying areas that can be streamlined under the new rules. They will need to develop new templates for transaction announcements that align with simplified requirements while still providing comprehensive information. They may wish to create a decision tree to quickly determine required disclosure levels for different transaction types. There will need to be clear internal timelines for gathering and verifying information needed for announcements.

2. Enhance governance communication and engagement strategies

IROs should create clear, concise explanations of their companies’ governance structures, especially if there is a dual-class share structure or controlling shareholder. They may also like to prepare presentation materials that visually explain governance structures and the alignment with shareholder interests. There should be dedicated governance sections within IR websites, providing detailed information and updates. It may also be advisable to develop an FAQ list to address potential investor concerns about governance under the new rules.

In some circumstances, IROs might choose to prepare comprehensive investor presentations outlining how their company has adapted to the new regime and to plan regular governance-focused meetings with major shareholders and proxy advisory firms.

As a one-off, IROs might want to schedule investor meetings, conference calls or teach-ins to specifically discuss the impact of the new listing rules on their company. It may make sense to develop targeted communication strategies for different investor types – institutional, retail, ESG-focused – to address their differing concerns.

3. Transferring from transition category to ESCC, where applicable

Companies previously listed under the standard segment may not have qualified for the new ESCC category or fit any other category and so will have been placed in the transition category. While these companies can continue operating under the old rules for a time, management may choose to speed up the transition to the ESCC category.

The IRO should conduct a cost-benefit analysis for an accelerated transition. To maintain investor confidence during the process, the IRO should develop a project plan to manage the transition effectively, and create a comprehensive communications plan to explain the benefits and implications of the transfer to investors and stakeholders. It is advisable for the IRO to consult with financial advisers about how this move might affect the shareholder base and stock liquidity, especially if the transfer makes the company eligible for inclusion in certain indices.

4. Stay informed and adaptable

It will be important to monitor FCA updates and industry discussion about the new listing regime. IROs may wish to be increasingly involved in IR professional organizations and to attend relevant conferences and events to stay abreast of best practice.

Internal stakeholder management will be important, and IROs might choose to hold regular meetings with corporate communications, legal and compliance teams to discuss new interpretations or guidance on listing rules. They may also consider establishing cross-functional working groups to address ongoing compliance and communication needs.

5. Work closely with legal and compliance teams

Depending on a company’s level of M&A intensity, IROs might schedule regular meetings with legal and compliance teams to review upcoming transactions and disclosure requirements. They should consider developing a shared database for tracking regulatory requirements and company policies under the new rules, incorporating protocols for when IR needs to consult with legal/compliance before making disclosures or investor communications. They should convene a rapid response team to handle urgent disclosure matters or investor inquiries about regulatory compliance.

What next?

These new rules are going to keep us on our toes. We’re going to be juggling more balls than ever. While there’s scope to streamline disclosure processes, I suspect there’ll be more resources needed for governance communication, such as explaining dual-class share structures or unpopular transactions. The strategies I’ve outlined here are just a starting point. You know your company and your investors better than anyone, so tailor these ideas to fit your unique situation.

One thing I can’t stress enough is the importance of staying informed and connected. This new regime is likely to evolve as it beds in. Some of us will even be pioneers – or guinea pigs, depending on how you think about it – and the experiences of others can provide valuable learning points. You should therefore keep your ear to the ground, network with your peers and not be shy about picking the brains of your legal and compliance teams.

I’d be remiss if I didn’t mention the elephant in the room. These new rules give companies more flexibility to act in conflict with shareholder interests – at least as we’ve traditionally understood them. It’s a delicate balance and, as IR professionals, we might find ourselves playing peacemaker more often than before.

We all know IR involves the need for the skillful handling of various situations. We’re used to translating financial jargon into investor-friendly language, navigating market sentiment and helping to keep the environment through which we navigate as favorable as possible.

I’m genuinely excited about what these changes could mean for the UK market. Yes, there will be challenges, but I believe that by embracing these changes and leveraging them effectively, we can help position our companies to make the most of the opportunity.