CP23/31: Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms

The Financial Conduct Authority, FCA, has issued a combined feedback statement and a new consultation on a proposed new listing regime in the UK and enhanced requirements of sponsors of issuing firms (new sponsoring regime). The paper comes in response to a consultation (CP23/10) that was launched in May 2023 (EventID 21064), in which the FCA presented some high level preliminary policy proposals on the implementation of such new listing regime whose primary purpose it is to remove current barriers to listing in the UK and to make the regime simple, straight forward, with a minimum of regulatory requirements to ensure financial market stability and enhance the competitiveness of the domestic financial market.
As there was an overwhelming support of the proposed changes to the listing regime, the FCA is now taking forward (most of) the intended changes and has now launched this new consultation to set out details on the proposed new regime. Details on such are briefly summarized below:
(1) single category for UK listings of equity shares in commercial companies: The FCA is taking forward its proposal on the creation of a single category for UK listings of equity shares in commercial companies, the new „primary listing category“. This new category will replace the existing Premium and Standard listing categories, which have been criticized for being overly complex and for creating confusion among investors. The new category will be subject to a single set of eligibility criteria and ongoing obligations, which will be designed to ensure that listed companies are of an appropriate size, scale, and quality.
As proposed in the first consultation paper, the FCA would thereby remove
– the historical financial information requirements for being eligible for listing;
– the current revenue earning track record obligations which requires proof of a minimum duration of the existence of an issuer;
– the obligation to furnish a clean working capital statement; or
– the requirement to facilitate shareholder voting on „significant“ and related party transactions and to distribute circulars to shareholders in this context.
On the other hand, the FCA proposes to retain the current controlling shareholder regime for premium listed companies, which includes the requirement for issuers to demonstrate their ability to operate their primary business independently and have a written and legally binding relationship agreement with the controlling shareholder.
Similarly, the FCA suggests to continue with a disclosure-based approach for related party transactions and will not require a shareholder vote on such transactions. However, related party transactions that meet a 5% threshold would have to be approved by the board and publicly announced by the issuer. There would be a similar approach to the „approval“ of significant transactions. All transactions (sale / purchase) involving 25% or more of its total assets or market capitalization would need board approval, but no shareholder vote. However, such transactions would be subject to stringent disclosure obligations.
Moreover, the FCA proposes to permit issuers to have dual and multiple share classes at admission. In this context, the FCA also proposes to expand the category of individuals eligible to hold enhanced voting rights to include not only directors, but also natural persons who are investors, shareholders, or employees (or a relevant vehicle). However, holders of enhanced voting rights would not be permitted to use those voting rights on certain issues, including a de-listing of the firm or the approval of long-term incentive plans.
(2) Other proposed new listing categories: The FCA proposes to include a number of other listing categories, such as those for special purpose acquisition companies (SPACs), debt securities, and closed-ended investment funds. These categories would be subject to their own eligibility criteria and ongoing obligations. For closed-ended investment funds, it may be noted that the FCA plans to retain the necessity to have a shareholder vote on material changes to a fund’s investment strategy, its management fee, and certain related party transactions.
(3) Transitional and secondary listing category: In addition to the new „commercial company“ listing category, the FCA proposes to include a „transition category“ for companies that are currently listed on the London Stock Exchange (LSE) under the existing Premium or Standard listing categories. This category is intended to provide a smooth transition for these companies to the new regime. The LSE would be responsible for monitoring companies in this category and ensuring that they meet the new eligibility criteria and ongoing obligations.
In this context, the FCA also proposes a secondary listing category. This category is intended for companies that are already listed on a recognized exchange in another jurisdiction and wish to obtain a secondary listing on the LSE. The eligibility criteria for this category would be less stringent than for the primary listing category, but companies will still be required to meet certain standards of governance and disclosure.
(4) New sponsoring regime and requirements: The proposed new sponsoring regime would be a key part of the new UK’s listing regime. It is designed to ensure that listed companies are supported by a sponsor who can provide advice and guidance on the listing process and ongoing obligations. The proposed regime would apply to certain categories, including the new primary listing category and the secondary listing category. Such firms would have to get a sponsor BEFORE listing who will be responsible for monitoring compliance with the existing listing rules and regulations in the listing process.
Furthermore, the FCA proposes stringent rules on the required competences of sponsors. For example, the FCA would require such sponsors to have a sufficient amount of relevant experience and expertise (e.g. experience in corporate finance advisory services of 5 years at a minimum) or have adequately trained and experienced staff to fulfill the tasks involved in sponsoring an issuer. In addition, sponsors would be subject to enhanced due diligence requirements in relation to the verification of public statements or the assurance of information delivered to a regulator.
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As the above summary only briefly describes the proposals of the FCA, please refer to the original legal document for more detailed, comprehensive information.