17 October 2023 Sarah Debney Capital Markets - Equity

FCA indicates likely trajectory of listing reform proposals

FCA indicates likely trajectory of listing reform proposals

Nikhil Rathi, Chief Executive of the Financial Conduct Authority, delivered a speech at the Mansion House yesterday evening where he set out the “ingredients” necessary for the UK to increase its competitive advantage, both as a listing venue and in the financial services industry more generally. 

A key theme was the need to take a more balanced view of risk – not to be so afraid of failure that innovation is stifled. In line with that philosophy, yesterday also saw the Government withdraw the proposed regulations that would have imposed more onerous corporate governance disclosures on large UK listed and private companies and state its intention to set out options to further reduce the burden of red tape on businesses (see our briefing here).

Listing regime reform

Ahead of the FCA feedback on CP 23/10 (see our briefing here) and further consultation on the detailed rules, the speech gave an insight into the position the FCA is likely to take in relation to a number of the proposals put forward for consultation in May (alongside a caution that further consultation means that these positions are not a “done deal”):

  • Dual class share structures: sunset clauses are to be “alleviated”, with the market deciding what is acceptable. This suggests that the proposed 10-year sunset on DCSSs will be dropped, although this was not explicit. The speech did not address whether individuals other than directors will be allowed to hold enhanced voting shares so this restriction may be retained. 
  • New single segment: this will go ahead with “no cliff edge and generous transition arrangements”. Although no further detail was given, this suggests that issuers unable or unwilling to move to the single segment will not find themselves forced to delist.
  • Class transactions: shareholder approval and FCA-approved circulars will no longer be required.
  • Related party transactions: the process will be “rationalised”, in line with the proposals in CP 23/10 “while retaining independent checks and balances”. This would suggest that no shareholder approval or FCA-approved circular will be required, although the remarks were not definitive. Mr Rathi did not elaborate on the form of the “checks and balances”, but it’s likely that the next consultation paper will propose additional safeguards, in response to the wariness of the market over the original proposals.
  • Sponsor regime: the speech referenced “adjustments” to the sponsor regime, which suggests change (although perhaps not significant change) from the proposals in CP 23/10.

Mr Rathi, spoke of a “bolder risk appetite” and acceptance that we should not “try to stop every failure”.

Additional change

It is widely recognised that the listing reforms will be only one part of much broader change necessary across the markets and the industry more generally. The speech also addressed the need for:  

  • an operationally effective regulator that delivers speed, clarity, and certainty; 
  • an internationally engaged regulator, leading on standards, risk oversight and innovation. Attention was drawn to the part the FCA plays in setting global standards and to the need for all market participants to give AI their attention and investment to manage the risks involved and to make the most of the potential opportunities; 
  • focus on data and digital infrastructure, which requires sustained leadership and investment. Mr Rathi spoke of the benefit of secure digital identities to improve access to financial services and tackle crime. He also stated that the FCA “saw the case” for more investment by Companies House to pick up false filings;
  • support for the talent and capabilities the market needs so that provision of financial services and access to the sector is available to all. The recent FCA and PRA consultation on diversity and inclusion was highlighted along with recent proposals to extend and improve maths education.

Next steps

Further consultation on the detailed changes to the Listing Rules is anticipated before Christmas, although Mr Rathi mentioned that the consultation would take place “shortly”, which may suggest a welcome, shorter timeline.