The Financial Conduct Authority (FCA) has confirmed a sweeping shake-up of its listing rules today in a bid to revive the City’s public markets and correct a drop off in flotations over the past two years.
In a statement today, the financial watchdog said the changes set out a “simplified” regulatory regime that would merge the two segments of its main market and “streamline” how companies could list their shares.
“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 Chancellor, Rachel Reeves said in a statement alongside the announcement.
The changes represent the biggest set of reforms to listing rules in over 30 years, the FCA said.
Under the new rules, set to take effect from the 29th July, the London Stock Exchange’s premium and standard segments will be merged and a requirement for companies to get approval from shareholders for certain mergers will be scrapped.
The need to consult shareholders for certain transactions have proved a bugbear for firms mulling a move on to London’s markets. After it snubbed the City to list in New York last year, British chipmaker Arm was reported to have blamed cumbersome deal approval processes as a driver of its decision.
The changes will also place more responsibility into the hands of investors for their own investment decisions, rather than holding boardrooms responsible.
“The FCA has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth,” the regulator said yesterday.
Dame Julia Hoggett, the boss of the London Stock Exchange, described the changes as the “largest set of reforms to our listing rules in decades”.
First mooted by the FCA in December last year, the changes have been pushed through in response to a drop-off in IPOs over the past two years. Just 23 firms floated on the London Stock Exchange last year, down 40 per cent on an already quiet 2022.
“With this simplified, more flexible and pragmatic regime we are moving back to a disclosure-based approach,” Mark Austin, a lawyer at Latham & Watkins who has led a series of reforms to the UK’s capital markets, told City A.M. “It removes the key friction points that had built up in recent years and creates a match fit regime that creates a level playing field with other jurisdictions.”
However, the overhaul has unsettled some corners of the market. In a letter to the FCA’s chair Ashley Alder last month, a group of the country’s top pension funds called on the FCA to reverse the plans on the grounds they would water down protection for investors.
“We think [the changes] will make the UK less appealing as a destination for capital,” a group of top pension funds, including Railpen and the Church of England Pensions board, warned.