The FCA has published a consultation paper (CP23/10) containing its updated blueprint for a significantly reformed UK listing regime for share issuers.
The transformational proposals are designed to make the UK listing framework more flexible, easier to understand and more competitive, both for issuers and investors, and represent a significant evolution of the FCA's previous reform proposals for the UK listed company landscape. Following this consultation, draft rules are now expected in autumn 2023.
Key proposals
The FCA's latest consultation paper contains the following key proposals (by reference to the existing Premium listing requirements), which remain subject to further consultation:
- a single listing category for equity shares in commercial companies, with a universal set of eligibility criteria and continuing obligations – the FCA's original plan to maintain a split level of continuing obligations within the single listing category has now been dropped;
- the removal of eligibility rules requiring a three-year and revenue-generating financial track record, as well as a "clean" working capital statement;
- the removal of compulsory shareholder circulars and votes for significant (i.e. Class 1) transactions, with prescribed announcement of key transaction details for transactions ≥25%;
- the removal of compulsory shareholder circulars and votes for related party transactions, with a requirement for a fair and reasonable opinion for transactions ≥5%;
- the retention of shareholder circulars and votes on reverse takeovers, de-listing and discounted share offers (which will now apply to all equity share issuers, including those which currently have a Standard listing);
- the retention of a modified sponsor regime applicable on admission to listing and in certain limited circumstances following listing (which will now apply to all equity share issuers, including those which currently have a Standard listing);
- simplified requirements relating to independent business and operational control over the company's main activities (which will now apply to all equity share issuers, including those which currently have a Standard listing);
- for issuers with controlling shareholders, a "comply or explain" approach to controlling shareholder agreements, together with the retention of the current requirements for election of independent board members;
- a more permissive form of the current Premium listing dual class share structure regime, which will remain limited to directors, transfer-restricted and subject to a "sunset" period of 10 years;
- the retention of the comply or explain approach in relation to the UK Corporate Governance Code (which will now apply to all equity share issuers, including those which currently have a Standard listing);
- a single set of Listing Principles and the potential merger of the rules for Sovereign Controlled Commercial Companies into the new single listing category;
- separate listing categories and rules for equity shares issued by investment vehicles, including closed and open-ended investment companies, SPACs and potentially other types of investment companies; and
- transitional provisions for existing listed companies.
Read more in the FCA's consultation paper here.
The new UK listing regime
The proposals are an important transformational step towards reforming the UK listing framework and will bring welcome additional flexibility for both issuers and investors. They represent, in many areas, a significant evolution of the FCA's original proposals in May 2022 and also signal a move towards a more disclosure-based regime, designed to accommodate a wider range of companies and corporate structures, whilst also giving investors the flexibility to form their own investment decisions based on disclosures.
As the FCA acknowledges, however, further consultation is needed on the detail of the proposals in order to move towards draft rules. A further critical factor will be the position of FTSE Russell, which maintains the FTSE indices, and the criteria it uses to determine inclusion in the FTSE UK indices going forwards.
Impact on Standard listings of shares and depositary receipts
A number of requirements applicable to Premium-listed issuers will be extended by the proposals to companies which currently have a Standard listing of equity shares, albeit in many instances in a modified and more flexible form. These include the sponsor regime, UK Corporate Governance Code "comply or explain" and significant transaction and related party rules. Whilst this will entail an increased compliance burden, these companies may, however, find they benefit from FTSE UK indices inclusion, something which is not open to Standard listed companies under the current regime.
In addition, the FCA has stated that it recognises the importance of the depositary receipt mechanism for overseas-listed companies and those wishing to invest in them and will seek to ensure that this remains a feature of the UK listed markets without disruption.
Next steps
The consultation period on the new proposals will run until 28 June 2023. Following this, the FCA expects to bring forward draft rules, a full cost-benefit analysis and wider proposals to address consequential and transitional issues in autumn 2023. Subject to the feedback received, the FCA will then seek to implement the final rules on an accelerated basis.
If you would like to discuss the above matters, please contact White & Case.
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