The Financial Conduct Authority (FCA) will proceed with a significant overhaul of the UK's listing regime, with new rules coming into force by the end of this month.
In a statement this morning, the City watchdog said the rules, which will result in a single "streamlined" categorisation for companies seeking to publicly sell their shares in the UK, would be the biggest changes made to the regime in over three decades.
"A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors," the FCA's executive director for markets and international Sarah Pritchard said.
"That's why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own."
The news comes amid disquiet over the apparent "shrinking" of the UK's public equity markets, as larger companies buy up smaller ones, and companies looking for an initial public offering (IPO) swerve London for markets overseas.
According to the UK Listing Review, the number of listed companies in the UK has fallen by around 40% from its peak in 2008. Between 2015 and 2020, the UK accounted for just 5% of all initial public offerings globally.
And the trend appears to be continuing. At the start of this week, drinks manufacturer Britvic (BVIC), which is a FTSE 250 constituent, announced it had accepted a buyout offer from Carlsberg. The move would mean Britvic de-lists from the London Stock Exchange.
But politicians of all stripes have also expressed quiet concern that London is also not attracting as many new entrants to the market too, following high-profile companies like chipmaker Arm Holdings choosing New York for their listings. The news that fast fashion company Shein will list in London did something to quell the discomfort, but the UK is yet to play host to a technology listing that delivers for investors in the long term.
Just days into her role as the UK's new chancellor of the exchequer, Rachel Reeves said the changes were a "significant first step".
"The financial services sector is central to the UK economy, and at the heart of this government's growth mission," she said.
"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."
The new rules will take effect on 29 July 2024, following a short implementation period.
How Will The New Regime Work?
The proposals are complicated, but they can be condensed down to the following:
1. 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;
2. The UK will move 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.
How Have Investors Responded to the New Regime?
When the FCA initially announced its proposals in December last year, there was some concern the proposed rules would result in a dilution of standards.
Indeed, in an interview with Morningstar.co.uk in January this year, now-outgoing Witan Investment Trust chief executive Andrew Bell said the FCA should be careful not to "throw the baby out with the bathwater" in its efforts to make the UK a more attractive place to invest.
"One of the reasons a lot of foreign companies wanted to list in the UK was because it had a respected set of requirements in order to be listed," he said at the time.
"And there was a quality threshold. And so, if you abolished the quite quality threshold, the danger is you're going to end up with lots of poor-quality companies coming along, or the market gets poorly rated because people think, well, I don't trust the accounts."
Today, concerns remain, despite the largely positive reception.
Chris Beckett, head of equity research at Quilter Cheviot, agreed the reforms were an important move, but highlighted the risk that governance standards might fall.
"Finally, while these reforms are a good, albeit limited, first step, we need to be careful not to lower standards too much," he said.
"Encouraging businesses to list here is beneficial, and we hope these reforms will help, despite reservations. However, attracting high quality companies requires maintaining robust governance standards. Given the FCA's mandate and actions to date, it fully understands the need to protect those standards."
One fund manager said it will take more than a listings overhaul to solve the UK's capital markets conundrum, however.
"These changes should be welcomed, as they will with other recent changes (the British ISA, for example) increase the attractiveness of the UK equity market,” said James Lowen, senior fund manager of the Morningstar Silver-Rated JO Hambro Capital Management UK Equity Income fund.
"However, the changes to date have been incremental, and more will need to be done – for example, mandated domestic allocations for pensions funds, the removal of stamp duty – to fully restore the UK market competitiveness on the world stage and remove the material valuation discount the UK trades on."
As much was acknowledged by the FCA in its announcement.
"Regulation is only part of the answer in helping the UK achieve sustainable growth," Pritchard said.
"Other factors play a significant role in influencing where a company decides to list. We're committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far."
With additional reporting by James Gard
