Significant changes are coming for UK listed companies: Listing rules and prospectus regime reform

Significant changes are coming for UK listed companies. The Financial Conduct Authority (FCA) has recently published detailed proposals aimed at improving the framework for listed commercial companies in London. The changes are being put forward through listing rules reform and also by amendments to the UK's prospectus regime. They form part of a transformational package intended to make the UK more attractive to a wider range of companies.

In this article, we summarise the headline proposals under the reforms, the new listing categories being created and how companies can respond to the consultation.

The Listing Regime Reform

As part of what the FCA described as "the most far-reaching reforms of the UK's listing regime in three decades" a new feedback and consultation document has been published: Primary Markets Effectiveness Review. This consultation document sets out how the FCA is proposing to create a simplified listing regime.

The headline proposals are:

• A new 'commercial companies' category for equity share listings will be created, replacing the current premium and standard listing segments, with a disclosure rather than rules-based approach. More detail on eligibility and ongoing obligations in this category is set out below.
• Other new listing categories to be created include:
  1. a transitional category for commercial companies currently with a standard listing.
  2. a SPACs (being special purpose acquisition companies) and other cash shells category.
  3. an international secondary listing category.
  4. a non-equity shares and non-voting equity shares category – to include preference shares and deferred shares.
• Transactions meeting current Class 1 thresholds will only require an announcement to be made, with no obligation to obtain shareholder approval.
• The sponsor regime will be retained at the point of admission, but otherwise only in circumstances where an issuer "is facing fundamental change".
• A completely new 'UK Listing Rules' sourcebook (UKLR) will be created.

The new commercial company category – eligibility:

• There will be no listing requirements for historical financial information, revenue track record and clean working capital statements, although prospectuses will still require disclosure of financial track record of up to three years and a working capital statement.
• The current premium listing requirements to demonstrate that the applicant for listing carries on an independent business as its main activity and retains operational control over that business will be removed.
• The requirement for independence from a controlling shareholder via a written relationship agreement will be retained, along with the related need for voter approval in certain situations.
• There will be a more flexible approach to dual class share structures (DCSS). Issuers will be permitted to have DCSS at admission. Enhanced voting rights can only be held by specified persons (namely directors, natural persons who are investors in, or shareholders of, the issuer and employees of the issuer), but without mandated time-based sunset clauses. Voting restrictions on dilutive transactions and the cancellation of listing will be retained, but the weighted voting will be able to be exercised when approving reverse takeovers and other strategic matters.
• The market capitalisation threshold of £30 million will remain, as will the 10% free float requirement.

The new commercial company category – ongoing obligations:

• Transactions currently meeting Class 1 transaction thresholds will be known as significant transactions and will be moved to a more disclosures-based regime. These transactions will not require prior shareholder approval (other than for reverse takeovers), but will be subject to an enhanced markets notifications regime (requiring, among other things, details of any break fee arrangements and the effect of the transaction on the company). There will be new guidance on what constitutes 'ordinary course of business'.
• Reverse takeovers will continue to require an FCA approved circular and prior shareholder approval for transactions ≥100% or involving a fundamental change in business.
• Larger related party transactions (being those with a percentage ratio of 5% or more based on class tests, excluding transactions in the ordinary course of business) will require market notification and a fair and reasonable opinion confirmation from the sponsor, but will not require shareholder approval.
• Share buy-backs, non pre-emptive discounted share issuances and cancellation will retain the requirement for shareholder votes.

Sponsors

The sponsor regime will support commercial companies, SPACs and other shell companies, and closed-ended investment funds at application stage and on reverse takeovers. The ongoing role for sponsors will be necessary for further issuance listing applications with a prospectus, for sponsor fair and reasonable opinions for larger related party transactions, or where issuers seek guidance, modifications or waivers to FCA rules (including on class tests).

New transition category

A new 'transition category' for existing standard listed companies will be created. Current standard list continuing obligations would carry forward to the proposed transition category and would have no fixed end date. Issuers in this category would be able to apply to transfer to the commercial companies category when and if they wish to do so (and a sponsor would be required in such cases). It would be closed to new entrants and to transfers from other categories.

New category for issuers with a secondary listing in the UK

The FCA is proposing a new specific secondary listings category for the equity shares of non-UK incorporated companies with a secondary listing in the UK. It will be open to new applicants, with eligibility and continuing obligations for the secondary listing category largely replicating the current standard list requirements. It is not proposed that the sponsor regime would apply.

Shell companies category

This will be a new listing category for equity shares for SPACs and other shell companies, to be called the 'shell companies category'. The scope of this category would be limited to shell companies actively pursuing a strategy of acquisition or whose assets consist solely, or predominantly, of cash or short-dated securities. The sponsor regime will apply to it.

Transitional arrangements

Existing premium listed issuers would be automatically mapped to the new commercial companies category on the implementation date.

Certain existing standard list commercial companies would be mapped to the new transition category. Mapping would also take place to move other existing standard listed issuers into the shell companies category and international secondary listing category, based on FCA analysis. The FCA say they will contact relevant issuers in advance of the changes to notify them of the assumed category they propose for them.

Next steps

This consultation will run until Friday 22 March 2024, although comments on the proposals regarding sponsor competence are invited before Friday 16 February. The FCA say they expect publication of final UKLR at the start of the second half of 2024, with implementation two weeks later.

Prospectus Regime Reform

The Government and the FCA are also working on the prospectus regime reform, with HM Treasury having published draft legislation in November and the FCA publishing a set of engagement papers last summer relating to the proposed public offers and admissions to trading regime. This revised framework is intended to replace the current EU-generated Prospectus Regulation.

The changes proposed will separate the regulation of the public offer of securities from the regulation of admissions of securities to trading, and the FCA will be given greater responsibility for implementing the new rules.

The proposed changes in brief are:

• The statutory prohibition on requesting admission to trading without an FCA approved prospectus will be removed. The FCA will be given powers to specify when a prospectus is required, including for secondary issues. It will also be able to determine what a prospectus should contain and address the manner and timing of publication. The FCA will have flexibility to determine whether to require an FCA-approved prospectus for a secondary listing, or whether it is possible to rely on a prospectus approved by an overseas regulator.
• There will be a general prohibition on public offerings of securities, unless an exemption applies. The exemptions available will comprise a mix of new and current exemptions, and include offers where the total consideration is less than £5 million, and offers of securities that are, or will be, admitted to a regulated market or a primary multilateral trading facility (such as AIM). The qualified investor and 150 persons exemption will be retained.
• The new regime will continue to allow companies to offer securities to the public without having them admitted to a securities market. A prospectus will no longer be required for any such offers. Instead, offers of securities above a £5 million threshold will need to be made through a public offer platform, to be achieved through the creation of a new regulated activity.

There is currently no clear indication as to when these rules will come into force. The FCA will first consult on and finalise the underlying regulatory framework.

If you would like to discuss these changes and the impact they will have for your business and the sector more generally, please do contact Charles Bond or your usual Gowling WLG contact.