Boosting UK listings competitiveness

A faster, more accessible and simplified market for public listings in the UK

UK regulators have acted swiftly in efforts to bring about changes to attract more companies to list in London. The Financial Conduct Authority (FCA) has published a consultation paper on further proposed changes to UK listing rules.

Globally, the number of Initial Public Offerings (IPOs) have seen a dramatic slowdown in 2022 compared to the previous year. This has continued into 2023 with the UK seeing 10 companies IPO by the end of April. This is lower than in previous years and reflects a long term structural decline in the number of new listings in many developed economies, excluding the US.

The UK’s listings have included the likes of automotive Dowlais Group plc (£500m), alongside the admission of real estate company Dar Global plc (£1.8bn). But the growing consensus within industry has been that more change is needed following Lord Hill’s Listings Review. This follows media commentary around UK companies considering US listings. The FCA’s proposed changes will help the UK to continue welcoming more innovative companies to its public markets.

Fast-tracking reforms

So what are the reforms that are being fast tracked and how will they help? Some of the highlights include:

Scrapping rules around shareholder votes on transactions between UK-listed companies and related parties.

This rule change will make it easier for companies to operate while on market. Companies have different levels of disclosure based on the type of transaction, and a related party can be a wide definition in rulebooks. So removing the shareholder vote can:

• reduce the burdensome costs from having to appoint advisors and lawyers;
• increase the speed of the transaction without having to seek consultation from getting transactions approved and having to schedule a shareholder vote;
• and enable more transactions (especially for smaller companies with more concentrated shareholdings).

This change would bring this element of the rules closer to how the US operates. It gives more autonomy to the company and board in deciding whether a transaction was made in good faith and best interest for the company. There are only a handful of related party transactions requiring a shareholder vote a year in the UK – there were 19 occurring between 2017-2022. However, this rule has been cited as a reason for the high-profile UK chip giant ARM listing in the US instead of the UK.

Removing the requirement of three years of audited accounts

For some companies, for example those making many smaller acquisitions, the requirements for full audited historical financial information are seen as costly, onerous and impractical. The uncertainty around meeting these requirements can lead issuers to abandon UK IPOs. Some companies can see this as a barrier to participating in public financing all together. In the US for example, there is more flexibility around the audited financial information: certain issuers only need two years of information. This change also benefits large international facing companies. It helps to alleviate the burden of having to align accounts with different global standards (e.g. IFRS and GAAP) for companies and group operations over multiple jurisdictions. This rule change will open the door for companies who previously found these rules onerous.

Although investors have expressed concerns on the increased risk from removing this regulation (£), the consensus among industry leaders and early stakeholder engagement has been that the investor mindset in the UK fundamentally needs to change around its relationship between risk and growth.

Rather than the standard and premium segments of the main market, a single listing for all issuers of equity

The FCA intends to create a single UK listing category for equity shares in commercial companies. A premium listing is often seen as the highest regulatory standard for a UK listing, but the cost of higher expectations around disclosure can be burdensome especially for smaller sized companies. The difference between rules, compliance and disclosure on the current two tiered system of standard and premium on the main market can simply be confusing and this rule change would simplify the market and again broaden its appeal.

Other changes include a more flexible approach to dual-class share listings. These were highlighted in Lord Hill’s Listing Review and allowed on premium last year. These have been particularly popular in the US among founders who have a preference for retaining a greater shareholding in their listing when coming to market. In 2021, nearly half (45%) of tech companies that listed in the US had dual-class share structures. The FCA now intends to implement a more permissive approach to these share structures as they are currently restricted (e.g. by being time limited) which could help encourage valuable listings in sectors such as technology.

Ensuring the UK remains a top listing destination

The City of London Corporation has welcomed the consultation and its aim to improve the UK’s competitiveness.

Policy Chairman at City of London Corporation, Chris Hayward, said:

These significant changes will signal the UK is open for business by making it simpler and easier for firms to list in the UK. The FCA’s proposals to rebalance the burden of regulation to the benefit of listed companies is welcome and will help make the UK a more attractive place for firms to raise capital.

But the work mustn’t stop here. Further changes are needed if the UK is to remain a leading global financial centre. The City Corporation has been calling for moves to bolster London’s international position and, along with leading industry figures, we will set out a roadmap which will be published later in the Autumn on how we can do exactly that.

More work will be needed to keep the UK competitive. The City of London Corporation has launched Finance for Growth: a Roadmap. Spearheaded by a steering board of influential figures from across the financial industry, it will set out a long-term plan to reinforce and renew the UK’s role as a global financial centre for the remainder of the decade and beyond.

The UK remains an attractive destination to list globally. Companies that list in the UK are listing in the world’s leading capital market taking account of all assets (on a multi asset basis). The UK is also home to the largest exchange in Europe by any measure and one trillion larger than France as its largest competition in the EU.

There are clear strengths in listing in the UK and still further work to be undertaken to secure London and the UK’s position as a globally competitive listing destination. This action is just one part of a wider Government programme to make UK capital markets more attractive.