A new discussion paper has been published by the Financial Conduct Authority (FCA) as part of the ongoing reform of the UK listing regime. This new paper follows the earlier consultation on Primary Market Effectiveness and the Hill UK Listing review.
The Hill UK Listing Review had recommended that the standard list be rebranded and re-marketed and the consultation feedback agreed with this. However the FCA noted that there was no practical way of making changes to the existing regulatory regime that would address the particular concerns raised about the standard segment, which included the lack of index inclusion and poor perception of issuers listed on the standard segment.
As a result, one of the proposed reforms is the creation of a single segment for equity shares in commercial companies which would replace the current standard and premium listing regimes.
The features of the single segment include:
- a single set of eligibility criteria;
- a robust minimum set of continuing "mandatory" obligations with a further set of "supplementary" obligations which issuers may opt into, following discussion and input from their shareholders. These would be based on the existing continuing obligations, with the mandatory obligations set at a level so as to ensure an appropriate level of investor protection for all listed companies. Issuers would choose the level of obligations at the point of listing, based on the specifics of their business, and, once listed, would only be able to move in or out of the supplementary regime with shareholder approval:
- the mandatory obligations would include related party transaction requirements, rules regarding open offers and rights issues, shareholder approval for cancellation of listing and dealings in own shares; and
- the supplementary obligations would cover the rules regarding significant transactions, the controlling shareholder regime and the independent business requirement. The FCA is also considering reviewing the threshold for class 1 transactions, raising the threshold from the current 25% to 33%;
- retention of a sponsor in the same way as the current premium listing regime. The level of involvement forms part of the consultation, and would depend on the continuing obligation standard being followed;
- a disclosure-based regime for financial eligibility requirements. The FCA is considering replacing the current eligibility criteria of the premium listing segment with a disclosure-based regime that would allow investors to decide whether to invest on the basis of applicable disclosures in the prospectus. The requirements for a three-year representative revenue track record, for three years of audited historical financial information representing at least 75% of the company's business and for a clean or unqualified working capital statement would therefore be removed;
- requirements that are duplicated as eligibility requirements and continuing obligations would become continuing obligations only, with an eligibility requirement to confirm that the company will comply with continuing obligations; and
- companies would be listed in the UK or denoted as having a UK Listing
The FCA have clarified that the regime that currently applies to standard listed companies for securities other than equity shares in commercial companies would be retained and that separate listing requirements would be retained for Special Purpose Acquisition Companies (SPACs), debt securities, Open Ended Investment Companies (OEICs), and secondary listings by overseas companies.
Addressing the concerns around index inclusion the FCA confirm the changes are being discussed with the index providers but acknowledge that index inclusion is not within the FCA's control, and that providers may choose to introduce criteria for inclusion, for example adherence to both the mandatory and supplementary continuing obligation.
The FCA acknowledges that it would not be in the interests of shareholders to de-list those standard list companies that are unable to meet the obligations within the new single segment. Transitional provisions are therefore being proposed that would allow such companies to retain their listing in the standard listing segment with an option made available to move to the single segment via an eligibility assessment with the FCA.
Equally moving all current premium list companies as a block to either the mandatory only or mandatory and supplementary continuing obligations would be unlikely to be appropriate. The FCA would therefore encourage those companies to discuss the supplementary obligations with shareholders and have an open conversation as to whether they are the right option. One way of achieving this would be to require a shareholder vote in each premium list company to determine whether the supplementary obligations are appropriate for them.
The standard listing segment was an EU construct, arising out of the minimum standards set under European directives so, post Brexit, it is not a surprise that its future is being considered. While a new future of the single segment is being set out for companies yet to come to market, it is not entirely clear what will happen to the current standard list companies longer term. The standard list has been a good holding pattern for dual listed companies, and the plans to retain the regime for secondary listings of equity shares in commercial companies that are incorporated overseas suggest that this option may stay available to them.
Adopting a single segment with what are more likely to be 'premium' rather than 'standard' characteristics may divert smaller companies from a Main Market listing to AIM and also to the Aquis Stock Exchange, given some concerns expressed in relation to over-regulation in relation to AIM.
Adopting a sponsor only regime will now take away the ability to carry out DIY listing, and whilst this will be regarded as safer for investors it will be more expensive for issuers. Overall there is a concern that the continuing tighter regulation will encourage companies to go to other markets, which would be a concern given the requirement of the UK to remain competitive in attracting new listings.
Feedback on the proposals is invited by 28 July 2022.
The paper can be found here: FCA Primary Markets Effectiveness Review
If you would like any more information on these changes or would like to discuss their impact please contact Charles Bond or your usual Gowling WLG contact.