On 11 July 2024, the UK's Financial Conduct Authority (the FCA) unveiled its final UK Listing Rules for the Main Market, set to take effect on 29 July 2024. These reforms represent the most significant transformation of the UK's listing framework in 40 years, aimed at enhancing the competitiveness of the UK capital markets and aligning the regime with international standards. By increasing flexibility for listed companies and adopting a more disclosure-focused approach, the FCA seeks to invigorate the UK listing landscape and simultaneously enhance the attractiveness of being listed and London as a listing venue.
The final rules were developed following two public consultations and extensive market engagement, reflecting feedback received during this process (see our previous client alerts set out further below). The final rules are broadly as consulted on in December 2023 and are intended to attract a broader range of companies (with a particular focus on growth companies) to access the public markets and foster growth within the UK market while maintaining high standards of investor protection and market integrity.
We have sought to summarise the key reforms which have been adopted (highlighting differences to what was initially proposed by the FCA in its related consultation papers) and outline how they seek to make London a more attractive listing venue for founder-backed growth companies and their investors.
Key Reforms
The FCA's reforms introduce several pivotal changes to the UK Listing Rules, summarised as follows:
| Reform Area | Key Details |
|---|---|
| New Listing Categories on the Main Market |
New listing categories The new listing categories of the Main Market will be: The new regime retains existing categories for global depositary receipts (GDRs), closed-ended investment funds, open-ended investment companies (OEICs), debt securities, securitised derivatives, and warrants / options / miscellaneous securities. Effective from 29 July 2024, existing issuers on the premium and standard segments will be automatically mapped into the relevant new listing categories. The new listing categories simplify access to the UK market for issuers and with the more flexible eligibility criteria and less onerous ongoing obligations of the Single Listing Category further described below, the Main Market is now potentially more attractive to a wider range of growth companies who previously may have thought their only or most viable listing option in London was the growth market, AIM – thereby giving such companies more options to consider when determining whether to go public in the UK. Listing Principles There will now be just a single set of listing principles for all categories, largely combining previous listing and premium listing principles. The new rules provide additional guidance on the role of directors and the accessibility of information. |
| Eligibility Criteria |
Whilst the eligibility criteria for the new Single Listing Category are less onerous than the previous premium listing segment, they are more stringent than the previous standard listing requirements so will represent an elevation of standards for those previously listed on or considering a listing on the standard segment. Financial information eligibility requirements Removal of the three-year revenue track record and "clean" working capital statement as prerequisites for listing. This change aims to lower the barriers for new entrants, in particular growth companies, which are still at a pre- or early revenue stage or whose growth trajectory is such that their historical financial statements are not fully representative of their current business, and who would have previously disregarded the Main Market for this reason. Dual class share structures Enhanced flexibility introduced to the new dual class share structures rules that were implemented in December 2021. The removal of the limits on voting ratios and the prescribed 5 year sunset period as well as permitting other types of holders of enhanced voting rights shares will provide additional flexibility to the use of dual class share structures. In addition to permitting other types of holders (including founders who no longer have to be directors of the issuer) to have open-ended enhanced voting rights, the final rules allow pre-IPO institutional investors that are legal persons to have time-limited enhanced voting rights. Such rights are subject to transfer restrictions and must expire after a maximum of 10 years. This significant shift encourages broader investment participation and brings the UK closer to practice in the US where such structures are more frequently used. The new UK requirements would, however, still be more limited in certain respects than in the US where enhanced voting rights can generally be exercised on all shareholder matters. Dual share class structures are not generally permitted on AIM and so would make a Main Market listing potentially more attractive to a founder-backed growth company in this respect. Board declaration on systems and controls To be submitted on admission. The FCA clarified this is required only at the time of the IPO, and not for subsequent admissions of securities of the same class that are already listed. Additionally, the format of the confirmation has been updated since the FCA's initial proposals to clarify that the obligations mentioned are those of the applicant, even though it is signed by an authorised board member. Pre-emption rights Carried over from the premium listing requirements. |
| Continuing Obligations |
Significant transactions Removal of mandatory shareholder votes (and therefore the need for a FCA-approved circular) for corporate transactions such as Class 1 or related party transactions in a move towards a more disclosure-based regime and requiring a market announcement only. Shareholder approval remains a requirement for reverse takeovers, share buybacks and cancellations of listings. No listing rule disclosure requirements for Class 2 transactions (i.e. significant transactions below 25% threshold on the class tests) although obligations under the Market Abuse Regime apply. Acquisition announcements will no longer require audited financial information about the target or a statement regarding the fairness of the consideration. However, larger related-party transactions will require a fair and reasonable opinion from a sponsor. In a slight departure from the original proposals, the new rules allow more flexibility regarding the timing and content of announcements for a significant transaction. Rather than an immediate announcement with prescribed content, a market notification is to be released upon signing and additional information can be announced as it becomes available prior to closing. After completion, a notification confirming the transaction must be published. In providing greater flexibility for companies in managing public disclosures for significant transactions, these reforms will not only reduce the ongoing administrative burden and costs related to a listing but will also arguably reduce some of the red tape and hindrances associated with being listed. Controlling shareholder regime Issuers must be independent from "controlling shareholders" holding 30%+ voting rights, but are no longer required to enter into binding relationship agreements with controlling shareholders. Instead, they must ensure independence through disclosures and board opinions on relevant resolutions. This change further exemplifies the move towards a more disclosure-based approach, rather than a rules-based approach. ESG reporting requirements UK Corporate Governance Code to apply on a comply-or-explain basis to all issuers on the Single Listing Category (including standard listed issuers who were not previously subject to the Code). Continuation of most premium listing annual disclosures including Task Force on Climate-Related Financial Disclosures (TCFD) and board diversity reporting, again representing an elevation of standards compared to the standard listing segment. |
What's Next?
With the final rules set to take effect on 29 July 2024, FTSE has confirmed that companies on the Single Listing Category and closed-ended investment fund issuers will be eligible for the FTSE UK Index Series. Further updates regarding changes to the FTSE UK Index Series Ground Rules are expected, providing clarity for investors and companies alike.
The FCA will conduct a formal review of the new listing regime in five years to evaluate its impact on market dynamics and assess ongoing relevance.
Related to these reforms are the forthcoming prospectus reforms. The FCA intends to release consultation proposals on the new public offers and admissions to trading regime in the summer of 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.