UK Declares the Most Significant Listing System Reform in Decades

The largest set of regulations for London-listed companies to be authorized by regulators in three decades has been accepted as the UK tries to resuscitate its capital markets, which have been severely damaged by international competition and an outflow of investment.

The new listing requirements will provide executives at companies more authority to make decisions without the input of shareholders and more latitude to implement dual-class share arrangements, which are popular among venture capital firms and founders as a means of granting them greater voting rights than other investors.

Days after a Labour government was elected, the Financial Conduct Authority confirmed the revisions on Thursday, confirming a Financial Times report from earlier in the month.

On July 29, the new regime will go into effect after the FCA held two public discussions from May 2023. The regulator stated that the new rules would “better reflect the risk appetite the economy needs to achieve growth,” although it has repeatedly said that they will increase the risk of investors losing money.

London has found it difficult to compete with New York for listings of fast-growing start-ups, while major corporations like construction materials business CRH and bookmaker Flutter have shifted their main listings to the US.

The new chancellor of the United Kingdom, Rachel Reeves, stated on Thursday that the financial services industry is essential to the country’s economy and at the core of the government’s goal of “economic growth.”

“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,” she said. 

The reorganization is an aspect of larger reforms initiated by the previous Conservative government, which the Labour government is anticipated to carry forward.

Among them are the so-called Edinburgh and Mansion House changes, which aim to encourage more risk-taking and boost domestic pension funds’ investments in UK assets.

The FCA intends to start a review of the UK’s prospectus regulations this summer, so there will be further adjustments coming.

The FCA’s December proposal was less radical than the listing rule revisions revealed on Thursday, as they let institutional investors hold super-voting rights under dual-class share structures.

Previously, the FCA stated that it only planned to permit natural persons to possess additional voting rights, such as directors and founders.

Investment groups like venture capitalists and private equity firms may be able to hold more voting rights than ordinary shareholders for a maximum of ten years as a result of the move.

If sovereign wealth funds possess controlling stakes, they would be exempt from the 10-year limit. This provision could facilitate the listing of certain Middle Eastern corporations in the UK.

The Financial Conduct Authority (FCA) admitted in a document released on Thursday that investors had “largely opposed” its ideas and had been “overwhelmingly against” its intention to provide greater latitude to employ dual-class structures.

According to the FCA, companies and their advisors had generally supported more latitude in the use of dual-class shares. It further said that investors would have the choice to withhold their money from any structure in which they felt uneasy.

Proponents of the plans contend that investors, including US IT organizations, already support foreign companies with dual-class shares.

The new regulations will do away with the need for shareholder approval for certain major deals or related party transactions. A corporation will still require votes to delist, execute a “reverse takeover” of a larger company, or accept a takeover bid.

The inclusion of a single category for both the premium and standard categories in the new regulations will further streamline the current system. Transitional provisions are going to be available to established enterprises.

Chief executive of the FCA Nikhil Rathi justified the changes by writing that “we do not believe the status quo is an option” and that if the regulations are left unchanged, the UK regime will become “increasingly out of step with those of other jurisdictions, making it less likely that companies eager to grow choose the UK as a place to list their shares.”