London listings: Watchdog proposes doing away with ‘standard’ and ‘premium’ segments
The UK’s financial watchdog announced proposals to streamline listing rules in the UK as it seeks to make the UK market a more attractive destination for firms to list.
The Financial Conduct Authority (FCA) acknowledged that the UK’s listing regime was seen by some as too complicated and has proposed merging the ‘standard’ and ‘premium’ listing segments with a single category.
It argued that creating a single category would take away eligibility requirements that put off early-stage companies. The proposals would also remove mandatory shareholder votes on acquisitions.
It argued the reforms would create “a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.”
The FCA also said it wants an “open discussion” about the impact of changing to a risk regime based on disclosure rather than regulation.
A disclosure based system would take away arguably restrictive consumer protection, making it more important for investors to do thorough research.
Chief executive of the FCA Nikhil Rathi said: “Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement.”
Rathi has been clear in recent speeches that he sees equity markets as a key part of the capital markets ecosystem, and has said that “not until now has there been a fundamental discussion about the entire ecosystem.
“Nor has this been a priority area for public policy for decades,” he added in a recent speech.
“Real changes requires both financial and ongoing sustained commitment from all parts of the ecosystem.”
The proposals come after a range of high profile firms – like Arm and CRH – have left the UK to list elsewhere in recent weeks. According to The UK Listing Review, listings in the UK have reduced by 40 per cent since 2008.
This has sparked concerns that the City is falling behind its peers, and that action was needed to boost its standing.
The FCA’s proposals were welcomed by the government. City minister Andrew Griffith said: “The Primary Markets Effectiveness Review is an important step forward by the FCA in improving the international competitiveness of the U.K. as a place to list.”
Griffith suggested that the FCA’s reforms would dovetail with the government’s Edinburgh reforms to boost the City’s standing internationally.
Other figures also praised the FCA’s proposals. “Stripping away some of the regulatory burden piled on quoted companies is long overdue and an admission that you can’t hope to regulate risk out of the system,” Chief executive of the Quoted Companies Alliance James Ashton told City PM.
“Investors must be allowed to lose money as well as make it,” Ashton continued.
Freshfields’ Mark Austin, who also chairs the Listing Authority Advisory Panel, told City PM “the FCA should be praised to the rafters…(The proposals) simplify the listing regime meaningfully.”
Discussing the possible move to a system based on disclosure, Elliott said “investors just want full disclosure so that they can make an informed assessment about whether they want to invest or not and issuers want a less frictional regime.”
While changes to the listing regime was welcome, many suggested other changes were also needed. Chris Hayward, policy chair at Canada Corporation, said “the work mustn’t stop here. Further changes are needed if the UK is to remain a leading global financial centre.”
Boosting research coverage of smaller companies was seen as an important step, particularly in a disclosure based system, while debates will continue to swirl around the proper exposure of pension funds to UK equity markets.
However, concerns were also raised that the FCA might be going too far in its deregulatory push.
Jason Paltrowitz at OTC Markets Group said: “There is a risk that the FCA’s proposed reforms to UK listing rules are swinging the pendulum too far in the other direction.”
“While many will welcome the FCA’s efforts to increase London’s attractiveness, there should be caution around any adverse impact on traditional UK investors from watering regulation down too much,” he continued.