The Financial Conduct Authority (FCA) has yesterday published its final reforms to the UK Listing Rules, marking a significant shift towards a more streamlined and disclosure-based regime. These changes, which will come into force on 29 July 2024, aim to enhance the attractiveness of the UK as a destination for public listings while maintaining high standards of market integrity and investor protection.
The key changes under UK Listing Rules Instrument 2024 (FCA 2024/23) relate to the "premium" and "standard" listing segments, disclosures, the role of sponsors, dual class share structures and investor protections.
The changes will affect companies currently listed in or considering listing in the UK, existing and prospective investors in UK listed companies (including individual and institutional investors), the advisory community that supports issuers on IPO and ongoing obligations post admission to listing and trading, UK exchanges and operators of markets for listed securities and intermediaries who may facilitate, including providing execution and/or marketing of investments to issuers whether at IPO or in secondary markets.
Key reforms
The FCA's policy statement summarises the feedback received from its consultations (CP23/10 and CP23/31 and outlines the final rules for the new UK Listing Rules sourcebook (see our earlier Insight). The primary changes include:
Single category for commercial companies: the current "premium" and "standard" listing segments will be replaced with a new "commercial companies" category for equity share listings. This aims to simplify the listing process and make it more accessible for a wider range of companies.
Disclosure-based philosophy: the new regime will shift from before the event controls set by regulators to a disclosure-based system. This approach empowers investors with the information they need to make informed decisions, thereby fostering a more dynamic and transparent market environment.
Enhanced role of sponsors: the role of sponsors will be extended to a broader variety of commercial companies, ensuring that high standards are maintained throughout the listing process.
Flexibility in disclosures: adjustments have been made to the timing and content of disclosures for significant transactions, providing more flexibility to issuers while ensuring that shareholders are promptly informed.
Dual class share structures: the new rules will be more permissive regarding companies listing with dual class share structures or weighted voting rights, subject to certain protections and a 10-year sunset clause for enhanced voting rights held by institutional investors.
Investor protections: key protections, such as votes on reverse takeovers and cancellations of listing, will be retained. The UK Corporate Governance Code will continue to apply to the new commercial companies category.
Differences between the final rules and earlier consultations
The final rules reflect several changes and refinements based on feedback from the earlier consultations (CP23/10 and CP23/31) discussed in our January 2024 Insight, these are:
Timing and content of disclosures: initially, the FCA proposed specific timing and content requirements for disclosures related to significant transactions but the final rules provide more flexibility. Shareholders must be notified as soon as possible after terms are agreed, with further information provided by the completion of the transaction.
Enhanced voting rights: the consultation suggested allowing institutional investors to hold enhanced voting rights without a specific time limit, but the final rules provide for institutional investors to hold enhanced voting rights to support pre-initial IPO funding rounds with a 10-year sunset clause to ensure predictability for other shareholders.
Independence from controlling shareholders: the final rules retain the requirement for companies to be independent from any controlling shareholder, however, instead of binding agreements, directors will now give opinions on resolutions proposed by controlling shareholders that appear to circumvent the Listing Rules.
Closed-ended investment funds: the category for closed-ended investment funds has been aligned more closely with the commercial companies category, with specific protections for transactions related to investment manager fees and include a change to the definition of an independent director, ensuring that governance standards are maintained.
Shell companies and SPACs: the final rules revert to the current standard listing rules for shell companies and special purpose acquisition companies (SPACs), with time limits for completing initial transactions and a requirement for sponsors.
Transitional provisions
To ensure a smooth transition to the new regime, the FCA has included transitional provisions that will help issuers navigate the shift without facing a cliff edge in requirements. This includes guidance on how "in-flight" transactions should be handled under the new rules.
Market impact and future monitoring
The FCA's reforms are designed to make the UK listing regime more competitive on the international stage. By reducing barriers to listing and promoting growth, it aims to attract a diverse range of companies to the UK market.
The FCA will closely supervise the new regime and conduct a formal post-implementation review in five years to assess its impact.
Osborne Clarke comment
We welcome the FCA's efforts to modernise the UK listing regime. The move towards a more disclosure-based system and the simplification of listing categories are positive steps that will improve the London market's competitiveness and create a level playing field with other major international trading venues, encouraging more companies to consider listing in the UK.
As previously stated in our Insight, we particularly view the changes around the removal of shareholder approval for class 1 and related party transactions as positive, given they have tended to have a disproportionate impact on smaller companies.
We encourage our clients and market participants to review the FCA's policy statement and the new UK Listing Rules sourcebook to understand the full implications of these changes. Our team of experts is available to provide guidance and support as the market transitions to this new regime.
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