The City regulator has just released its proposed rules to encourage companies to list on UK markets and improve its existing regime. These build on consultations commenced in May and are designed to work alongside government efforts to boost the attractiveness of UK stock markets under the so-called Edinburgh Reforms.
The aim is to make the UK's listing regime more accessible, effective and competitive, but in the background are Brexit's impact on the City, the legacy of the financial crisis on regulation and the Conservative government's very loud push to loosen existing rules and spur "Big Bang 2.0".
While the Financial Conduct Authority's (FCA) proposals may sound esoteric to the average investor (the reforms include changes to the "bond market consolidated tape", for example) they will have a direct impact on how retail shareholders interact with their domestic market in the coming years and how data and information are presented.
How Will The New Regime Work?
The proposals are complicated, but they can be condensed down to the following:
- The FCA is sticking with its proposal to simplify the listing regime. This will involve a single listing category and "streamlined" eligibility requirements to make things simpler for listees;
- Moving to a "disclosure-based" system, which the FCA hopes will "put sufficient information in the hands of investors, so they can influence company behaviour and decide how they want to invest".
The existing regime means corporate actions are put to mandatory votes, long seen as a key feature of the UK’s global reputation for corporate governance. However, the FCA agrees they can also present stumbling blocks.
Instead, "significant transactions" and related-party transactions will now be subject to official disclosures to allow investors to make up their own minds in a different way. Shareholder approval for reverse takeovers and de-listing will remain.
Why Are Commentators Concerned?
These ideas have received an almost-immediate push-back from commentators.
Tom Lee, head of trading proposition at Hargreaves Lansdown, says:
"Making the UK an attractive place to list has to be balanced with rights for shareholders and ensuring that the quality of the market is not diluted," he says.
"We are therefore concerned the FCA is pushing forward proposals that do not allow for shareholder votes on significant and related-party transactions. The plans to have no mandatory sunset clause on dual class share structures has the potential to create a permanent two-tier share structure, which is not welcome."
This theme was also taken up by Galina Dimitrova, director for investment and capital markets at The Investment Association, a trade body for asset managers and investors.
"It is important the reforms strike the right balance between risk and investor protections, so the UK can attract and retain innovative companies," she says.
"This in turn will provide sustainable economic growth and long-term returns for our clients."
In November’s Autumn Statement, the chancellor tweaked some ISA reules but disappointed some in the industry by backing away from a "British ISA" designed to attract capital to domestic companies. This was arguably odd, not least because Hunt had already deliberately drawn comparison with the "Tell Sid" campaign, a moniker synonymous with Thatcherite privatisations in the 1980s.
Lee thinks the FCA's proposals missed an opportunity to support domestic retail investors.
"We are also disappointed the opportunity to boost retail access to IPOs was not taken with this review of listings rules," he says.
"It is therefore essential the forthcoming review of the prospectus regime in 2024 puts improving retail investors' rights at its heart. The regime cannot continue to be the barrier to retail investment that it is today.
"Boosting retail investment on the stock exchange will have wider market benefits providing depth and liquidity, as well as boosting interest in investment with the wider public, unlocking further capital for UK-listed companies."
