UK announces biggest overhaul of listings regime in decades
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Regulators have approved the biggest overhaul of rules for London-listed companies in three decades as the UK attempts to revive its capital markets, which have been pummelled by international competition and an outflow of investment.
The new listing rules will hand more power to company bosses to make decisions without shareholder votes, and give companies more flexibility to adopt dual-class share structures used by founders and venture capital firms to give themselves stronger voting rights than other investors.
The Financial Conduct Authority announced the changes on Thursday, days after the election of a Labour government, confirming a report by the Financial Times last month.
The new regime will come into force on July 29 following two public consultations by the FCA since May 2023. The regulator has warned repeatedly that the new rules will mean there is a higher risk of investors losing money but it said they would “better reflect the risk appetite the economy needs to achieve growth”.
London has struggled to compete with New York for listings of high-growth start-ups while large groups such as bookmaker Flutter and building materials group CRH have moved their primary listings to the US.
“The financial services sector is central to the UK economy, and at the heart of this government’s [economic] growth mission,” said Rachel Reeves, the UK’s new chancellor, on Thursday.
“These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here,” she said.
The shake-up is part of wider reforms begun by the previous Conservative government which the Labour administration is expected to continue.
They include the so-called Edinburgh and Mansion House reforms, designed to increase investment in UK assets by domestic pension funds and instil a culture of greater risk-taking.
Further changes are on the horizon with the FCA planning to launch a review of the UK’s prospectus rules this summer.
The listing rule changes announced on Thursday are more drastic than previously proposed by the FCA in December because they will allow institutional investors to hold super voting rights under dual class share structures.
The FCA previously said it intended to allow only natural persons, such as founders and directors, to hold extra voting rights.
The change will mean investment groups such as private equity firms and venture capitalists may be able to hold more voting rights than other shareholders for up to 10 years.
The 10-year limit would not apply to sovereign wealth funds if they are controlling shareholders, a rule that could make it easier for some Middle East-owned companies in particular to list in the UK.
In a document published on Thursday, the FCA acknowledged that investors had been “overwhelmingly against” its plan to allow greater freedom to use dual class structures and had “largely opposed” its proposals.
The FCA said companies and their advisers had mostly supported increased flexibility to use dual class shares. It added that investors would have the option not to invest in any structure they were not comfortable with.
Supporters of the proposals have argued that investors already back overseas companies with dual class shares, including US tech groups.
The new rules will abolish requirements for shareholders to approve related party transactions or certain other large deals. Votes will still be needed for a company to delist, carry out a “reverse takeover” of a larger business or if the company receives a takeover offer.
The new rules will also simplify the existing regime by collapsing the premium and standard segments into a single category. Existing companies will be able to avail of transitional arrangements.
Justifying the changes, FCA boss Nikhil Rathi wrote that “we do not believe the status quo is an option” and that refusing to overhaul the rules would risk the UK regime falling “increasingly out of step with those of other jurisdictions, making it less likely that companies eager to grow choose the UK as a place to list their shares”.
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