FCA Announces Changes to the Listing Rules

In September, the FCA's Director of Market Oversight, Clare Cole, discussed the regulator's plans for the UK Listing Review.

This will include sweeping changes to the old listing regime to make the UK more competitive for investors in the post-pandemic world.

Why is the FCA implementing these changes?

The regulator says the current listing regime is impeding technological innovation in the financial sector because it is 'slow' and has 'missed the boat'.

Cole also said there were concerns over the governance standards of smaller financial firms in relation to climate change and board diversity - which the new requirements would seek to address.

The current regime is also making London a less-attractive place to do business

Many companies are thinking twice before listing in London.

Why?

In a Letter to the Chancellor that forms the introduction to Lord Hill's UK Listing Review, published in March 2021, Hill states that the current regime is too complex, inflexible, burdensome and long winded.

And is there demand for this change?

It seems so. According to the FCA, there is 'unprecedented support' for reforming the listing regime, and the regulator says it is committed to making it 'more agile' and more 'flexible'. In the UK Listing Review, Lord Hill said that everyone he had spoken to - from investors to regulators - spoke of the need for change and reform.

So, what would the new listing regime involve?

Here is a summary of what the review recommended, which formed the basis of the FCA’s new listing proposals.

Improve the monitoring and delivery of results

1. The Chancellor should present an annual report on the financial sector, entitled 'State of the City'. This would provide detail on the steps taken - or yet to be taken - to ensure the UK remains a well-regulated global financial centre.
2. HM Treasury should consider whether the FCA's current statutory objectives are sufficient for its role in the future regulatory framework.
3. The report suggested that the regulator should also be responsible for considering the UK's attractiveness as a business centre, in addition to building a regulatory environment that is welcoming, supportive, and dynamic for companies looking to list.

‘If we want to increase London’s attractiveness as a place to take a company public, then we need to have consistent policies and messages that back that ambition up in a coherent manner.’ 
Jonathan Hill, Chairman, UK Listing Review

Make it easier for a company to go public in London

1. Companies with dual class share structures should be allowed to list in the premium listing segment, but must maintain high corporate governance standards, which are specified in page 13-14 of the report.
2. The standard listing segment would also be rebranded and remarketed, while free float requirements would be changed to measure liquidity more accurately during and after listing.
3. The Listing Rules would be revised to ensure additional protection for shareholders when a potential acquisition is announced, when trading can currently be suspended in shares of SPACs (Special Purpose Acquisition Company).

‘The proposals for a targeted form of dual class share structure in the premium segment, and lowering the minimum free float level, are firmly aimed at making a more welcoming environment for innovative companies so they will transition to public markets earlier’.
Clare Cole, Director of Market Oversight, FCA

Create a new prospectus regime that will serve UK capital markets better

1. HMT should review the prospectus regime to ensure it is appropriate for the future. For example, alternative listing documentation could be used where this is appropriate and possible.
2. The current regime would be maintained for secondary and dual listings.

‘The prospectus regime as currently drafted does not best serve the UK capital markets and as such, we recommend a fundamental rethink of the current regime’. 
Jonathan Hill, Chairman, UK Listing Review

Meet investors’ needs more effectively

1. Amend the liability regime for issuers and directors to make it easier for investors to access information on events, plans, projections, and so on.
2. The regime would maintain the three-year track record requirement for premium listings.
3. Review provisions for the revenue-earning requirements of scientific research-based companies to attract a broader range of high-growth, innovative businesses.
4. The requirement for historical financial information to cover at least 75% of the issuer’s business should only apply to the most recent financial period of the three-year track record.

‘This [the current liability regime] is clearly a highly inefficient and unsatisfactory process – and one that could be fixed by issuers being able to provide their forward-looking financial and other information directly to investors’.
Jonathan Hill, Chairman, UK Listing Review.

Other recommendations from the review:

1. Draw more attention to the value of technology in improving retail investor involvement in corporate actions and stewardship roles.
2. Reinstate the Rights Issue Review Group (RIRG), which can make capital raising more efficient.
3. Review the FCA Handbook’s conduct of business rules in relation to unconnected research analysts in IPOs. Removing the need for an extra seven days of the public phase could make the listing process more efficient.
4. Act on industry concerns on the wider financial ecosystem, such as creating a competitive tax environment.

The FCA says it will move swiftly to make the final rules by the end of this year

That means next year's IPOs will already benefit from the first changes, such as dual class share structures and minimum market capitalisation. However, Cole stressed that ‘the bigger picture will take longer to develop’ and that the discussions are ‘very much the beginning of our engagement’.

The City, regulators and politicians are unanimous in their support for reform

Rest assured that this sort of tripartite alignment doesn’t happen often.

In the UK Listing Review, Lord Hill stressed that for reform to happen, 'the whole marketplace - including the LSE, investors, advisers, regulators and the Government - must 'take responsibility and work together to make change happen'.

We look forward to revisiting this topic as further changes are announced.