The FCA’s Chief Executive Updates UK Market on Continued UK Listing Regime Reforms: A Consideration of Which Reforms Will Most Impact Growth Companies

On 29 March 2023, the chief executive of the UK Financial Conduct Authority (FCA), Nikhil Rathi, delivered a speech at the Global Investment Management Summit in London on the wider UK capital markets ecosystem, which included updates on the FCA’s expected approach to further reforming the UK listing regime. This follows proposals in the FCA’s discussion paper published in May 2022 that set out a single listing segment structure as an alternative to the current dual premium-versus-standard listing structure. Rathi explained that the FCA is expected to publish further revised proposals soon.

Key Takeaways on the UK Listing Reforms

Rathi delivered a wide-ranging speech covering a number of topics affecting the UK capital markets landscape, including boosting asset management and the role to be played by UK pension funds. He provided a further update on the FCA’s expected direction of travel on a number of proposed reforms for the UK listing regime, following feedback it received in response to its May 2022 discussion paper.

In terms of reforms of particular relevance to attracting growth companies to the London markets, he indicated that the FCA expects to propose the following:

• A single listing category for the shares of commercial companies will replace the current dual listing structure with one set of requirements. Feedback received by the FCA indicates that while the standard listed segment offers greater flexibility, it is less well understood and seen as an inferior brand.
• Removal of the eligibility rule requiring a three-year financial track record as a condition for listing, which we believe will be a critical amendment to the regime that will specifically benefit fast-growing start-ups.
• Adoption of a more permissive approach to dual share structures beyond the reforms the FCA implemented in December 2021, which allowed companies with dual share classes to be premium listed subject to certain restrictions (namely that the higher voting rights attached to the non-listed shares should become effective only following a change of control of the company in question or to the extent the holder of such non-listed shares is removed as a director). While no details were provided of the exact approach the FCA might take, the FCA may potentially be prepared to move away from this “M&A deterrent” approach to a more permissive one in which a holder of the higher voting shares is able to exercise greater control over the affairs of the company on a more regular basis. Such a change would narrow the gap between the UK and the US regimes. In the latter, dual share class structures are more common and less restricted. Any such additional flexibility would be a welcome development for founder-backed growth companies, as it will enable founders to potentially retain greater control over the company following its listing than is currently permitted. 
• Removal of the need for compulsory shareholder votes for large M&A transactions and related party transactions. Under this proposal, a disclosure regime relating to such transactions would be maintained. This would reduce the regulatory burden on public companies carrying out post-IPO strategic transactions.

The FCA is also expected to retain the following requirements from the current regime:

• A streamlined sponsor regime
• A single set of Listing Principles
• Rules to protect shareholders from the solvent cancellation of a listing without a takeover offer or approval by a supermajority of investors

While we await further details on the above proposals, the indications Rathi provided suggest that the FCA is alive to the need for its reforms of the UK listing regime to go potentially beyond what it initially proposed, and it is hoped that, through a combination of more flexible eligibility requirements and less onerous ongoing obligations, the UK listing regime will be more attractive to growth companies looking to list at an earlier stage of their corporate life cycle. London’s efforts to increase the competitiveness of its capital markets continue.

If you would like to discuss any of the topics raised in this alert or have any queries about the UK listing process and the status of its ongoing reform, please reach out to the Goodwin team members listed below.