After months of consultation over proposed changes to the UK listing rules, the Financial Conduct Authority (FCA) has published the UK Listing Rules Instrument 2024 (FCA 2024/23), which come into force on 29 July 2024 and seek to create “a new, simplified and more competitive UK listing regime”.

Background

In March 2021, the UK Listing Review highlighted that share listings had fallen by 40% since 2008, with the UK only accounting for 5% of global initial public offerings between 2015 and 2020.  In July 2024, EY reported that, following record lows in Q4 2023, the London Stock Exchange (LSE) attracted eight new listings in the first six months of 2024, raising a total of £514 million (down from £593 million during the same period in 2023).

The new listing rules are clearly intended to address criticisms over the existing framework, which some have argued is overly complex and onerous for listed companies and those who might be interested in listing in the UK. In particular, the new listing rules will seek to keep pace with the EU rule changes which were provisionally agreed in February of this year and aim to improve access to European capital markets.

Changes

The headline changes of the new listing rules are:

• the removal of the listing requirement for companies to present three years’ historical financial information and an unqualified working capital statement (though prospectus rules will still require disclosure of this information in a listing prospectus);
• the creation of a single category for UK listings of equity shares in commercial companies (“ESCC”), replacing the current premium and standard listed share categories for commercial companies with, or seeking, a new ‘primary’ equity share listing in the UK;
• the removal of the requirement for listed companies to have a relationship agreement with a controlling shareholder (though the requirement for a listed company to remain independent from a controlling shareholder remains);
• the removal of the requirement for listed companies to seek shareholder approval for large transactions (other than in the case of a reverse takeover, de-listing, share buy-back, share cancellation or significant change in the company’s business) and related party transactions; and
• to permit dual or multiple class share structures, whereby holders of one class of share may hold enhanced voting rights over holders of another class (in the case of institutional investors, limited to a period of 10 years).

Impact

The FCA has noted that the changes introduced with the new listing rules will affect:

• companies currently listed in or considering a listing in the UK;
• existing and prospective investors in UK listed companies, including individual and institutional investors;
• the advisory community that advises and supports issuers undertaking an IPO and meeting ongoing obligations post admission to listing and trading, including existing and prospective sponsor firms, investment banks, law firms and accountancy firms;
• UK exchanges and operators of markets for listed securities; and
• intermediaries who may facilitate, including providing execution and/or marketing of investments, to issuers whether at IPO or in secondary markets.

In particular, the removal of the three-year track record requirement (noting that disclosure of historical financial information will still require to be set out in the listing prospectus) is clearly intended to attract high growth, early stage and/or pre-revenue companies to consider listing in the UK.

It is significant that in seeking to achieve greater simplicity for existing issuers, the new listing rules have on several fronts departed from the requirement that directors seek shareholder approval for large transactions. The upshot of these changes is that directors will be afforded a greater degree of flexibility in how they are able to approach key transactions which are outside the normal course of a company’s business. The trade off is that investors will now have less of a say in, less visibility on, and arguably less opportunity to hold management to account in respect of the same.

The introduction of dual or multi-class share structures is likewise a significant change to the existing framework and goes further than had been indicated by the FCA’s previous proposals. It is easy to see how this change would enable founders and/or directors (and institutional investors, albeit for no more than 10 years) to retain control after the listing of the company.

Analysis

The new listing rules have been welcomed by many in the corporate world. The CEO of LSE plc, Julia Hoggett, has said the new listing rules will provide companies with “a listing regime that better supports their growth ambitions, increases investment opportunities for UK investors and supports the UK economy”. The new Chancellor of the Exchequer, Rachel Reeves, has backed the reforms too, commenting that “these new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here”.

On the other hand, the International Corporate Governance Network (“ICGN”) had cautioned against the FCA’s proposals earlier this year as potentially “weakening the UK corporate governance standards and shareholder protections”. Following publication of the new listing rules, the ICGN commented that it is “deeply concerned by the loss of shareholder votes on significant and related party transactions, and by the introduction of a two-tier system for share ownership”. This concern has been echoed by other influential investor groups and acknowledged by the FCA.

For others, while the reforms may bring the UK listing regime in step with competitor jurisdictions, they do not go far enough in incentivising companies to choose the UK over those rivals. James Lowen, a senior fund manager at J O Hambro Capital Management, notes that “more will need to be done” to make the UK a truly competitive market for issuers.

The FCA has pledged to formally review the new listing rules in five years’ time “to assess the impacts on all parts of the market”, while noting that they “will not hesitate to intervene earlier” should that prove necessary to maintain market integrity and the FCA’s statutory objectives.

Closing

The FCA has been clear that the new listing rules “involve allowing greater risk”, but in a way that, it claims, “will better reflect the risk appetite the economy needs to achieve growth”.

The regulator hopes that these changes strike a balance between increasing the UK’s competitiveness while also maintaining investor protections.

However, opinion appears to be mixed as to whether the reforms sufficiently cut red tape for issuers while retaining sufficient protections for investors in a way that meaningfully elevates the UK’s attractiveness as a jurisdiction in which to list.

Take action now:

• Regulated firms should assess how these simplified rules can benefit and expedite their business decisions. Processes around listing requirements should be updated along with template documentation meriting a refresh.
• Investors should familiarise themselves with the changes and how this may affect decision making in, or otherwise impact their portfolios.

For advice in relation to any of these changes please contact Edward Hunter or Caroline Stevenson.

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