UK Listing Rules Reforms

The UK Financial Conduct Authority (FCA) has today published its long-awaited reforms to the UK’s listing regime (Listing Rules), designed to reinvigorate UK capital markets and make the listing regime more internationally competitive.

The reforms, which follow two public consultations and will come into force on 29 July 2024, represent the most significant change to the Listing Rules in 40 years. The intention is to better align the UK’s listing regime with international competitors, increasing flexibility for listed companies by removing some of the more stringent requirements in favour of a more disclosure-focused approach. The FCA has noted that the new regime means a re-balancing of risk for investors, but also that the changes better reflect the risk appetite the wider economy needs to achieve growth.

Key Changes

The key changes include:¹

• Merging the premium and standard listing segments of the London Stock Exchange (LSE) to create a single point of entry to the UK market, the Equity Shares (Commercial Company) category (ESCC).
• Removing the requirements for a three-year financial and revenue earning track record and "clean" working capital statement as conditions to listing.
• Allowing for both natural persons and institutional investors to hold super voting rights under dual-class share structures. This is a more drastic change than previously proposed by the FCA (which was limited to natural persons, e.g., founders and directors) and will mean that investors such as private equity funds will be able to hold such super voting rights for up to 10 years.
• Removing compulsory shareholder votes for large transactions (other than reverse takeovers) and related party transactions and increasing the thresholds at which key information must be disclosed to the market.
• Existing rules surrounding issuers maintaining independent business and operational control over their main activities are modified and simplified.
• In a change from the FCA’s previous position, there will now no longer be a requirement for issuers to enter into binding relationship agreements with controlling shareholders. Issuers will still be required to remain independent from controlling shareholders, but this will be governed through disclosures and requirements for directors to formally give opinions on any resolutions proposed by a controlling shareholder where such director considers the resolution may circumvent the application of the Listing Rules.

The FCA will retain the existing requirement for shareholder votes for certain key corporate actions such as cancellation of listing, share buy-backs and non-pre-emptive discounted share cancellations.

Reasons for the Reforms

As well documented, there has been concern about the lack of competitiveness in the UK market. The number of listed companies in the UK has fallen by about 40% since 2008. Between 2015 and 2020, the UK accounted for only 5% of initial public offerings (IPOs) globally.² Companies have opted for listings in other jurisdictions (most notably the US) and there has been a recent trend of existing UK-listed companies also listing on US exchanges and/or signaling their intention to move their primary listings to the US.

The Listing Rules reforms aim to address these issues and are part of a wider swath of reforms designed to increase investment in the UK. Rachel Reeves, the new UK Chancellor, said 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”.

UK Indexation

FTSE Russell, which maintains the FTSE indices, previously indicated that it expects ESCC and Closed End Investment Fund issuers to be eligible for inclusion in the FTSE UK Index Series. Now the changes to the listing regime have been finally confirmed, FTSE Russell is expected to confirm any further resulting changes to the FTSE UK Index Series Ground Rules soon, which will be welcome to many investors and companies alike as they seek to understand the changing regulatory landscape.

^{1 See paragraph 1.15 of Policy Statement PS24/6 for a full summary of the changes.}

^{2 UK Listing Review.}