The UK is proposing “significant changes to the listing rule book” in a bid to make London more attractive as a financial centre as moribund capital markets stoke fears about the city’s ability to compete with New York and Asian hubs.
The Financial Conduct Authority wants to replace its premium and standard listing categories with a single offering in a bid to attract more companies, according to a statement.
The regulator said the changes would make UK listings less complicated and onerous. It would make it easier for companies to have two classes of shares, which is favoured by some entrepreneurs who want to keep control of their businesses even after they have gone public, and would remove mandatory shareholder votes, including on acquisitions.
The proposals follow a dramatic drop in the number of new listings in London and as other companies seek to move their shares to New York, sparking concerns about whether the UK can retain its place as one of the world’s biggest financial centres after Brexit.
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Any reduction in rules would shrink investors’ protections and that requires a wider public debate, the FCA said.
“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,” Nikhil Rathi, the FCA’s chief executive, said on Tuesday.
The Square Mile welcomed the proposal but urged more changes. “The work mustn’t stop here,” said Chris Hayward, policy chairman at City of London Corporation. Andrew Griffith, the City minister, described the move as “an important step forward,” noting in a statement “it is important our rule book keeps pace with practices elsewhere.”
The FCA already imposed a string of reforms after Jonathan Hill’s listings review in 2021, including lowering the required free float and allowing some dual share classes. It has now launched a fresh consultation until June 28 over potentially doing away with additional burdens involved in a premium listing which have historically made companies eligible for inclusion in FTSE indices. Implementing the outcome of the consultation would happen later this year or early in 2024.
“If implemented, London would be able to stand toe to toe with our international competitors,” Hill said in a statement. “I agree that we certainly need to have a wider debate about risk and growth.”
In a speech at the Global Investment Management Summit in London in March, Rathi said “politically and culturally,” questions needed to be asked about various parties are comfortable moving to a system dependent on disclosure rather than detailed rules.
“If we move down this route, there will need to be clear acceptance that some investors, even those who do read and understand every word of the disclosure, will lose money,” Rathi said. “When these events happen, there can be no question of compensation for those investors left nursing losses on the grounds of perceived regulatory failure.”
His comments come amid a highly-charged debated about London’s future. A decision by Cambridge-based technology company Arm Ltd. to list in New York after considering a premium dual listing in both the UK and US sparked criticism of the FCA for not relaxing related party transaction rules – a condition Arm was reported to have wanted.
Dublin-based CRH, one of Europe’s biggest building materials companies, is moving its primary listing to New York from the UK, while Paddy Power owner Flutter Entertainment last week said it has secured shareholder backing to pursue an additional US listing.
Still, Deutsche Bank’s’s decision to buy London-based broker Numis, which was announced on Friday, was seen as a vote of confidence in London’s long-term future.
Rathi’s comments come as pressure is rising on the government to reform the UK’s pensions regulations to make it easier for hundreds of billions of pounds in retirement savings to be directed into investing in British companies. While there is widespread support for those changes, there are also concerns about potential risks that retirement funds may suffer. – Bloomberg
