FCA Approves Major Overhaul of Listing Rules to Boost UK Economy
The Financial Conduct Authority (FCA) has announced significant changes to the rules governing UK listed companies, marking the largest reform in three decades. The regulator aims to revive the struggling UK stock market, with the new rules set to come into effect on 29 July.
The recent downturn in the UK stock market, coupled with a lack of companies floating on the London Stock Exchange and a trend of companies moving their main listing to the US, has prompted the need for these reforms. Notable companies that have shifted their listings in recent years include Flutter Entertainment, CRH, Ferguson, TUI, and Smurfit Kappa.
The changes to the listing rules, part of a wider set of reforms introduced by the previous Conservative government (known as the “Edinburgh Reforms”), have been embraced by the new Labour government. The key objectives of the reforms are to remove the need for shareholder approval on significant and related party transactions, empower company boards, and attract more growth companies to the UK market.
One of the significant changes is the removal of the requirement for shareholder votes on related party transactions, which is believed to be a key reason why some companies, such as Arm Holdings, have chosen to list in the US instead of London. Another change allows founders or directors of a company to have enhanced voting rights for an unlimited period, bringing the UK in line with the US. This is expected to attract more tech companies that want to retain control after going public.
Institutional investors who have supported a company before its listing will also be granted enhanced voting rights for up to 10 years. Additionally, the new rules will merge the current “premium” and “standard” listing categories into a single category for equities. This change aims to simplify the listing process and make the UK market more attractive to companies like Saudi Aramco, the world’s largest oil producer, which was previously deterred by the strict rules of the premium listing.
Sarah Pritchard, the FCA’s executive director for markets and international, confirmed the new rules, emphasizing that they will allow for more risk but also better reflect the UK’s risk appetite for achieving growth. She also highlighted the extensive market engagement that took place before finalizing the changes, adding that a thriving capital market is vital for investment in growing companies and providing returns and choice for investors.
The rule changes have received support from key figures in the financial industry, including Dame Julia Hoggett, CEO of the London Stock Exchange, and Chancellor Rachel Reeves. Both praised the reforms for making the UK a more attractive destination for companies and investors, supporting the country’s economic growth.
However, not all are thrilled with the changes. Some investors are concerned that the reforms could compromise standards and result in poor investment decisions for savers. A group of pension funds, led by Railpen, wrote to the FCA last month expressing their reservations and citing past examples of investment disasters, such as Eurasian Natural Resources Corporation (ENRC) and Bumi.
Critics have also unfairly accused the reforms of being a conflict of interest, as FCA CEO Nikhil Rathi previously held a senior position at the London Stock Exchange. Despite these concerns, the FCA remains confident that the changes will have a positive impact on the UK’s capital market and continue to work with all stakeholders to support its growth.
