FCA finalises Listing regime transformation

What does this mean?

The final rules follow consultations issued in May and December 2023 and which outlined the FCA’s plans for radical reform of the UK Listing regime. The PS maintains the FCA’s approach set out in its consultations as it aims to embed a more streamlined regime that is more attractive to a wider range of companies. 

The core change introduces a single ‘equity shares (commercial companies)’ category, with reduced eligibility and ongoing requirements compared to the previous premium listing segment. 

The FCA has removed financial information eligibility requirements, as well as obligations around independence of business and control of business. Requirements for independence from controlling shareholders is retained, however as a change from its consultation proposals, the FCA has removed the requirement for a written agreement for independence between issuers and controlling shareholders. This will be replaced by a new mechanism for directors to give an opinion on a shareholder resolution put forward by a controlling shareholder when the director considers that the resolution may be intended to circumvent the listing rules. 

The new regime substantially reduces requirements on STs for premium listed companies by removing the requirement for a shareholder vote, circular, and sponsor involvement. 

The FCA will move to a disclosure-based regime that introduces enhanced disclosure requirements on STs. Mandatory sponsor appointment and third party scrutiny on financial information disclosures will no longer be required. 

Similarly for RPTs over 5%, requirements for prior shareholder approval and circular issuance will be removed. This is replaced by a disclosure-based regime with additional governance requirements and a sponsor’s ‘fair and reasonable’ confirmation. 

Issuers will now be required to issue a notification to the market on transaction details but will not be required to obtain guidance from a sponsor on its obligations.

For reverse takeovers, the FCA retains the need for an FCA-approved circular and shareholder approval. 

The FCA will adopt a more flexible approach to permitting DCSS. Enhanced voting rights will be limited to specified persons, with no time-based sunset clause. The policy statement introduces additional enhanced voting rights for pre-IPO institutional investors, subject to a ten-year sunset clause. Certain voting restrictions will also be retained.

Despite strong divergence of industry views on shareholder votes for STs and RPTs, as well as on DCSS, the FCA maintains its view that the new rules strike the right balance between encouraging and supporting UK listings and maintaining market integrity and consumer protection.

The FCA will move sovereign controlled companies into the commercial companies category with certain requirements disapplied. A distinct category for close ended investment funds has also been created, where shareholder approval will be required for any transaction outside of investment policy above 25%. Rules on STs and RPTs will also be aligned to rules for commercial companies.

The FCA will map current standard primary listings of commercial companies into a new ‘transition’ category to allow existing issuers to transfer into another category when ready. This category will be closed to new applicants and have no end date. 

A new ‘international secondary listing’ category will be available for non-UK incorporated companies with a secondary listing in the UK. 

A category for shell companies and SPACs has also been created. This largely maintains current rules for standard listed shares, but will apply additional eligibility requirements. Additional flexibility has been offered in the policy statement allowing SPACs the option to extend the time limits on completing a transaction. A sponsor will also be required at admission and to support an ‘initial transaction’. 

To underpin the reformed listing regime, the FCA has  established one set of Listing Principles that extend to all listed companies and set a common baseline for issuers. The FCA has proceeded as previously consulted, with additional clarity provided on the role of boards and record keeping.

In the context of the reduced circumstances when a sponsor is required, the FCA has relaxed the requirements regarding sponsor competence.

What do firms need to do?

The FCA has stood firm on its attempt to strike a balance between the views of buy-side and sell-side market participants by reducing actual and perceived regulatory burdens for companies to list, while retaining an adequate level of investor protection. 

For investors, the new regime will bring about a significant change to available protections and transfer of risk, particularly for investors in premium listed companies.The move to a disclosure-based regime will likely result in additional due diligence and monitoring costs, as well as reassessment of investment processes and strategies to compensate for the reduced influence and protections under the new regime.

For sponsors, while the FCA has retained a continual role at admission, their role post-listing has substantially diminished. Sponsors should have prepared for the impact of the changes and amendments to sponsor competence rules.

Next steps

The new rules will go live on 29 July 2024. Standard listed issuers assigned to the transition category can apply to be transferred to the new ‘commercial company’ category from this date.

The FCA intends to formally review the new listing regime in five years.