Impending Listing Regime Reforms: what do they mean for listed companies?

The UK listing regime will be shaken up this summer, with the most radical changes in decades. The FCA has confirmed it hopes to finalise the new rules in July 2024, with most of them taking effect shortly afterwards.

Enhancing the competitiveness of the UK capital market the changes will remove some longstanding shareholder protection measures. As a result there will be greater emphasis on the need for disclosure and dialogue so that investors can make informed decisions and hold company boards to account. The structure of the market will also change and the FCA is contacting UK listed issuers now to address how this will affect them.

The following is an overview of the key changes for existing UK listed companies, based on the draft rules published in March 2024. If you wish to discuss any aspect of the new rules or what they will mean for you, please contact us and we will be happy to assist.

A streamlined UK market

The premium and standard listing segments will be merged into a single commercial companies category. This will have fewer eligibility requirements and ongoing obligations than the current premium listing segment, but more than currently apply to a standard listing. 

Separate listing categories will apply for equity shares of closed-ended investment funds, open-ended investment companies, shell companies, and international commercial companies with a secondary listing. A transition category, subject to rules mirroring those of the old standard segment, will enable current standard-listed issuers to maintain the status quo, rather than moving to the CC category or otherwise having to delist. The transition category will be closed to new entrants and is not subject to any fixed end-date (although the FCA expects its population to diminish over time).

The FCA is currently undertaking a “mapping” exercise to assign existing equity listed companies to their new categories and is contacting companies about this now. Companies will receive a letter from the FCA notifying them of the proposed listing category that will be assigned and gives a four-week period during which the choice of category can be challenged. It is expected that existing premium listed commercial companies will be moved straight across to the new CC category and standard listed companies will be, generally, assigned the transition or secondary listing categories (from where they will have the option to “step-up” to the CC category – see below).

Other types of security will also, as now, have their own categories, including depositary receipts, non-equity shares, debt securities, securitised derivatives and, finally, warrants, options and other miscellaneous securities.

Standard listed issuers: “stepping-up” 

Existing standard listed issuers may transfer (“step-up”) to the CC category when they are able to satisfy the applicable eligibility and ongoing requirements. 

Companies that might not have been able to access the premium segment in the past, may now be eligible for the CC category, which is more accessible and diverse thanks to, among other things, the more permissive approach to dual class share structures and the removal of the requirements regarding running an independent business. For those eligible, stepping up to the CC category will mean potential eligibility for inclusion in the UK FTSE indices alongside greater profile and access to a greater number of investors. 

This will also mean adapting to more stringent obligations than they have been used to and putting new agreements and policies in place to manage these additional requirements – including an agreement with any controlling shareholder and policies in relation to significant and related party transactions. 

The new rules propose a simplified transfer process for existing standard-listed issuers wishing to “step-up”. Instead of having to demonstrate compliance with all the eligibility requirements of the CC category, an issuer will be assessed by the FCA on the requirements relating to:

• externally managed companies;
• controlling shareholders;
• constitutional arrangements (that allow the company to comply with the new UK Listing Rules); and
• the additional obligations that do not apply to existing standard listed issuers (for example,  significant and related party transactions and additional annual reporting requirements).

A sponsor will be required for this process but their role will be in line with this more targeted assessment. Confirmation in relation to financial position and prospectus procedures and working capital will not be required. 

We can assist with this exercise so contact us to talk about stepping-up to the CC category.

Significant and related party transactions

For existing UK premium listed companies, the key rule changes involve the approach to significant (class 1) and related party transactions. The headline change is the removal of the requirement for shareholder approval (although note this will remain in place for reverse takeovers). This should enhance UK listed companies’ ability to compete in M&A processes, enabling faster, more decisive action by boards.

As well as the removal of shareholder approval, there are further helpful changes to these regimes. For example, fewer transactions may fall within the related party rules in the future as the proposed rules increase the level of shareholding, that determines who is regarded as a significant shareholder, from 10% to 20%. The class tests will also be amended to remove the profits test, which has historically led to a high number of anomalous results that needed to be discussed with the FCA. 

Companies in the CC category will, however, still need to make detailed disclosure in relation to significant transactions (25% plus on the amended class tests). The new disclosure regime means that UK listed companies will need to disclose, as soon as possible after the terms of the transaction are agreed:

• information relating to the transaction (broadly in line with current Class 2 announcement requirements); 
• financial information; 
• non-financial information (such as risk factors and material contracts); and 
• any other information necessary to provide an understanding of and to enable the shareholder to assess the terms of the transaction and its impact on the issuer. 

This approach may increase the pressure at the point of signing the transaction and impact deal timetables.

The announcement obligations for related party transactions are less demanding than those applicable to significant transactions. However, before the transaction is entered into, the listed company must obtain written confirmation from a sponsor that the terms of the proposed transaction are fair and reasonable as far as the security holders of the company are concerned. 

Once the rules are finalised, issuers listed in the CC category should update their internal manuals and procedures on significant and related party transactions to make sure they reflect the new rules.

In-flight transactions 

As soon as the new UK Listing Rules come into effect, the old obligations under the previous Listing Rules will fall away. Companies will no longer be required to publish a circular or hold a shareholder vote, even if preparations are already underway. 

However, under transitional provisions contained in the new rules, where companies have not yet published a shareholder circular they will be subject to the new announcement obligations for significant and related party transactions (in full). This is the case regardless of whether the transaction has already been announced under the old rules. The content requirements of a shareholder circular, being greater than the new announcement obligations, mean that the disclosure requirements under the new rules will be regarded as being fulfilled, if a circular has been published.

Directors’ responsibility for listing principles and systems and controls

Listed companies should note that the new rules are expected to contain new guidance on the Listing Principles to emphasise the role of directors in relation to maintaining appropriate systems and controls, providing relevant information, and dealing with the FCA in an open and cooperative manner. 

A new board declaration is proposed, which will require the board to be satisfied that their company has procedures, systems and controls which enable the company to comply with its obligations, including those under the Listing Principles and related guidance. This declaration would need to be made to FCA whenever the company applies for a new or further listing of securities.

Once the rules are finalised, all UK listed issuers should update their internal directors’ training  and induction materials to make sure they reflect the new rules.

Debt issuers

The listing regime for debt securities is largely unchanged except that issuers will have to comply with the general Listing Principles. As for equity issuers, the board will need to give a declaration on each listing of securities to confirm to the FCA that the company has appropriate systems, procedures and controls.

Sponsors

Companies applying for listing of equities in the commercial companies category will need to engage a sponsor but the need to employ a sponsor after listing is reduced as shareholder circulars seeking approval are no longer required for significant and related party transactions.  Where a company is required to have a sponsor, sponsor responsibilities will remain broadly the same as under the current regime. Changes to the rules and related guidance emphasise that on matters where a sponsor is involved, the FCA will expect to communicate with the company through the sponsor rather than its other advisers.