City figures have rounded on a group of top pension schemes after they mounted a last ditch attempt to derail the Financial Conduct Authority’s shake-up of listing rules last week.
In a letter to FCA chair Charles Randell on Friday, the International Corporate Governance Network and a group of pension firms including Railpen and the People’s Pension sounded the alarm on an impending overhaul of listing rules, warning it would water down protection for shareholders.
The move triggered immediate pushback from the Financial Conduct Authority, which acknowledged its changes might make public markets riskier but stressed the plans had been drawn up after lengthy talks with the industry.
“We know these proposed changes rebalance risk, that’s why we have consulted the industry extensively on the proposals and we will take account of all feedback in determining our final rules,” an FCA spokesperson said.
The plans were hurried out by FCA chief Nikhil Rathi last year after Cambridge-based chipmaker Arm snubbed London to float in New York – partly due to the FCA’s stringent listing rules.
Under the proposed rule changes, firms will not be required to consult their shareholders on certain deals and will be allowed to use long-term dual-class share structures, which can offer founders more powerful voting rights in their companies.
Such a structure has unsettled the pension funds, who claim it would be “diluting shareholder rights” in a way that can be “detrimental to firm value even in the near-term”.
However, City figures moved to rubbish the complaints and pointed to the fact that retirement cash has already been flowing out of the market for years under the current regime.
“We have to be clear-eyed on this topic. Actions should match words and if you look at where these investors put their money they are happy to do that in markets that have similar approaches to, or even more lenient than, the UK proposals,” said Mark Austin, a capital markets lawyer who has led much of the reform efforts around the City.
“If the current standards are the right ones, why are they not investing in our markets right now?”
Investment into the UK’s stock market by pension funds has cratered in recent years after accounting changes around the turn of the millennium triggered a rush into safer bond holdings.
Just four per cent of the stock market is now held by pension funds, down from 39 per cent in 2000, according to the think tank New Financial.
Charles Hall, head of research at investment bank Peel Hunt, said it was “essential” to “increase the demand side” of the UK’s capital markets through pension reform and a UK ISA to encourage retail investment.”.
“The current position is unsustainable given the scale of exits from the UK, both of companies and funds,” he told City A.M.. “Pensions can be an important part of the solution if they enabled more capital to be invested in UK companies.”
The FCA’s planned changes to listing rules have come in response to a drop-off in new IPOs over the past two years. Just 23 firms floated in London last year, down 40 per cent on an already quiet 2022.
Onerous listing rules have been blamed as one of the drivers of the decline in IPOs, with chipmaker Arm reportedly snubbing London due to certain regulation mandated by the FCA.