Potential red flags in UK financial watchdog's listing reforms

(Alliance News) - The UK Financial Conduct Authority said on Tuesday it intends to reform the listing rules in the UK to help attract a wider range of companies, encourage competition and improve choice for investors.

For Kevin Doran, managing director at AJ Bell, the new proposals show that the UK government and FCA were "stung" by the loss of Cambridge-based chip designer Arm Ltd.

Arm was a London listing and FTSE 100 constituent prior to being acquired by Tokyo-based Softbank Group Corp for GBP24.3 billion in 2016. In March 2023, the company chose to float only in New York this year, dealing a blow to London as a financial centre.

"As the crown jewel of the domestic tech sector, the fact that the company chose the US as its new home when returning to public markets is a sign of how far the UK has fallen since the company de-listed in 2016," Doran said.

The FCA noted that listings in the UK have reduced by 40% since 2008. Though it acknowledged that the decision by a firm to list is based on more factors than regulation alone, it said the listing regime in the UK has been seen by some as "too complicated and onerous".

"Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement," said Nikhil Rathi, chief executive of the FCA.

The FCA said it is proposing "significant" changes to the listing rulebook, including replacing its existing standard and premium listing segments with a single category for equity shares in commercial companies.

AJ Bell's Doran said: "Like a bouncer at a night-club, the London market has traditionally adopted a stricter dress code than most when it comes to listing rules, whether in the form of restricting dual-listings, votes on major transactions or requiring fuller levels of disclosure when raising capital. Today's proposal is the effective equivalent of asking the club-goers whether they're willing to let the trainer wearing ruffians in, in order to keep the party going."

The financial watchdog said a single equity category would remove eligibility requirements that can deter early-stage companies, be more permissive on dual class share structures, and remove mandatory shareholder votes on transactions such as acquisitions to reduce frictions to companies.

"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," it said.

Richard Wilson, chief executive at interactive investor, said he "strongly" supports the "principles" behind listing rule reform to make the UK more competitive, but warned that "eroding shareholder rights" risks undermining market standards, and is not the right answer.

"Dual-class structures, which come with differential voting rights, erode shareholder rights. Distorted rights distort governance and accountability. When company founders seek external capital from shareholders, as equity owners they must respect their shareholder rights. One share, one vote is a bedrock of shareholder democracy and we are concerned to see that the spectre of dual share classes, which we have actively lobbied against, still looms large. Reference to removing mandatory shareholder votes on transactions such as acquisitions is another major red flag," he said.

By Heather Rydings, Alliance News senior economics reporter

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