The Financial Conduct Authority (FCA) has indicated that significant changes could soon be made to the UK listing regime, the rules that govern admission to listing on the London Stock Exchange. Clare Cole, director of market oversight at the regulator, outlined her thoughts at City & Financial’s virtual ‘Modernisation of the Listing Regime’ summit earlier this month.
Cole said the current listing regime was "stuck in 1984" and highlighted how Covid-19 had shown quick and "agile" changes could be made to keep up with the times. She spoke positively of the UK Listing Review, chaired by Lord Hill, which contains key recommendations such as bringing dual-class shares to the premium segment of the exchange.
Significantly, Cole noted that rules around significant transactions, related parties and controlling shareholders could be “removed or enhanced”.
As technology companies have come to dominate exchanges in recent years, New York has largely been their venue of choice. London has struggled to remain competitive in attracting IPOs, with the number of annual listings in the Square Mile falling by 40 per cent since 2008. The recent announcement that Oxford Nanopore would list in London has proved there is still some interest in the City, although the Deliveroo (ROO) IPO earlier this year has proved that investors won't just jump on any tech-adjacent opportunity.
Further, Brexit and the lack of financial services equivalence with the EU has opened the door to the possibility of a new regulatory regime that diverges from the European model.
Lobby groups urged caution before any major changes come in, however. The Institute of Directors, which supports and represents UK business leaders, said that “the FCA should think long and hard” about changing rules around related parties and controlling shareholders, and noted that these regulations “are crucial bulwarks of good governance on the London market”.
ShareSoc, which represents private individual investors, has warned of “a race to the bottom” on standards.
The FCA will make new rules by the end of the year on specific market reforms after responses to FCA and Treasury consultations are considered. Cole affirmed that the regulator wants to allow companies with dual-class share structures to list on the premium market and to raise the minimum market capitalisation required to list on the main market to £50m. The FCA also seeks to change the current free float rules, so that a minimum of 10 per cent of shares at a company that wants to list must be in public hands rather than 25 per cent.
Other areas of potential change will be consulted on and considered over the longer term. Cole finished her speech by noting that future changes will “redraw the picture of public markets in the UK”. It seems as though companies and investors will soon encounter a very different listing regime.
