Changes to FCA listing rules welcomed but government must ‘address wrinkles’

The FCA’s listing rules – which come into effect on Friday (3 December) – have seen a number of changes to keep the UK as a “trusted and attractive place to list successful companies”, according to the watchdog.

Although in the policy statement the FCA acknowledged there were some respondents who did not agree with the new listing rules, overall the changes have been received well.

Anne Fairweather, head of government affairs and public policy at Hargreaves Lansdown, said: “Rule tweaks will encourage more companies to list in the UK providing welcome opportunities for investors.

“The government must now look to address wrinkles in the way reams of information must be disclosed through the use of old-fashioned prospectuses, which currently limit the attraction of offering new capital raisings to ordinary investors.”

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She added that retail investors should have the opportunity to invest at IPOs, as well as “greater protection” with secondary fund raises.

“A flurry of smaller companies joining the market will provide potential for some exciting growth in newly emerging technologies and industries, however this potential will go hand in hand with increased risk,” said Fairweather.

Charles Howarth, a corporate partner at law firm CMS, highlighted that the changes to the FCA’s listing rules will be welcomed by companies and owners considering whether to list in London.

“The reduction of the minimum free float to 10% and the change to allow dual share classes will be welcomed by founders who previously might have feared loss of control over the direction of companies they have nurtured since inception,” he said.

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“The policy statement mentions the high levels of feedback received in relation to the track record requirement and strong engagement with the discussion of more extensive changes to the structure of the listing regime.”

According to Howarth, both the UK Treasury and the FCA have a “great opportunity to modernise UK markets” so they can more effectively compete with the US. “This is a good start,” he said.

Meanwhile, Chris Cummings, chief executive of industry trade body the Investment Association, said: “Investment managers are keen to achieve the right listing environment which attracts high-quality and innovative companies to list and operate in the UK, and we welcome the reforms set out today.

“We’ll be working closely with our members to see how the reforms work in practice and the outcomes they deliver. Success should be measured, not on the number of companies that list, but rather on the quality of those companies, and the long-term sustainable returns they deliver for shareholders.”

He added: “It is important now to focus on a broader set of reforms to the wider listing ecosystem, including promoting the UK as a listing venue and improving the advice and support that high growth companies receive through their listing journey.”

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The FCA has said it will monitor the number and type of issuers using the new rules as well as how the market receives them.

It will also track any “new areas of misconduct are emerging or existing misconduct is increasing”, the watchdog said in its policy statement.

According to the FCA, the premium listing segment provides “wide and significant” additional safeguards for shareholders, even if using the proposed form of dual class structures (DCSS).

“We consider that these are sufficient to maintain high corporate governance standards and investor confidence in such issuers,” said the FCA.

“These safeguards are also significantly higher than in the standard listing segment, or on unlisted markets in the UK, where these companies may otherwise access public markets.”

Nigel Gordon, partner in Fladgate’s Capital Markets team, highlighted that the listing rule changes are “broadly” welcome, particularly the reduction in free float requirement and the dual-class structure, which are expected to give the market a boost.

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“However, the large increase in the minimum market capitalisation threshold seems to be an overreaction. Although micro-cap companies should be discouraged, investor confidence should rest upon a company’s compliance with the Listing Rules, which is not in itself a function of size,” he said.

The changes made to the FCA’s listing rules include: reducing the amount of shares an issuer is required to have in public hands from 25% to 10%; allowing DCSS within the premium listing segment; and increasing the minimum market capitalisation threshold for both premium and standard listed segments for shares in ordinary commercial companies from £700,000 to £30m.

According to the UK Listing Review, the UK accounted for just 5% of IPOs globally between 2015 and 2020, while the number of listed companies in the UK has fallen by about 40% from a peak in 2008.

For John Lane, partner in law firm Linklaters’ corporate team, although the changes to the rules were expected, it is an “exciting” development. “It makes London a more attractive listing choice and reflects an encouragingly quick response to rapidly changing market dynamics,” he said.

The listing rule changes were confirmed by the FCA on Thursday morning (2 December).


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