Regulator proposes sweeping changes to UK listing regime

The UK’s financial regulator is pursuing a deeper and faster overhaul of the stock market listing rules after a string of high-profile companies shunned the City in favour of New York, raising questions about London’s future.

In a consultation document to be published on Wednesday, the Financial Conduct Authority will outline plans to scrap rules forcing a shareholder vote on transactions between UK-listed companies and “related parties”. The provisions were blamed for the decision by SoftBank to list its Cambridge-based chip designer Arm on Nasdaq earlier this year.

The listings revamp will make it easier for companies to join the market by removing a requirement for firms to have three years of audited financial accounts. The regulator has also bowed to industry demands by simplifying plans to fuse London’s standard and premium markets into a single category.

The new rules could be in place by early next year for companies seeking new listings in London and phased in for companies already on the exchange. “This is us moving at high speed,” said one person familiar with the FCA’s position, adding that the industry was pushing the regulator to “move quickly”.

The urgency reflects growing alarm at the decline of London’s stock exchange, where the number of listed companies has fallen by 40 per cent since 2008.

This year has been particularly bruising. At the same time as Arm opted for a Nasdaq listing, building materials giant CRH decided to move its listing from London to New York. The City has secured just six new listings compared to 56 on US exchanges and 34 on other European stock markets so far in 2023.

“We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets,” said Nikhil Rathi, chief executive of the FCA. He added that the reforms would “significantly rebalance the burden of regulation to the benefit of listed companies and investors who [were] willing to set their own risk appetite and terms of engagement”.

City minister Andrew Griffith described the package as an “important step” in “improving the international competitiveness of the UK as a place to list”.

The most significant change in the FCA’s approach, following an initial consultation launched last year, is in the area of related-party transactions, where the regulator originally proposed retaining a mandatory shareholder vote. A person familiar with the watchdog’s thinking said it had received feedback that the mandatory vote was viewed as a significant barrier for companies considering new listings.

Arm, for example, would have needed a shareholder vote on transfers of resources, services and other obligations with the vast array of companies owned by its parent SoftBank, an obligation that was seen as overly burdensome by executives.

Under the latest proposals, UK listed companies will still have to disclose related-party transactions.

There was also little enthusiasm for the FCA’s plans to replace standard and premium listings in London with a single listing and “optional add-ons”. The FCA now wants to have a single listing for all issuers of equity, with no add-ons.

Charles Howarth, a corporate partner with law firm CMS, said the existing structure of premium and standard listings, had “caused confusion and the standard listing has always been considered second class”.

Lord Jonathan Hill, author of a report on the UK’s listing regime, said the FCA’s proposals built on the “direction of travel” of his recommendations and “if implemented, London would be able to stand toe to toe with our international competitors.”

But he warned last week that regulations could only go so far in arresting the sharp decline in the City’s public markets, and that a mindset shift on things such as risk, pay and culture was also needed.

Chris Hayward, policy chair at the City of London Corporation, said the FCA’s proposals were “significant” but further changes were needed, which he would outline later this year.

Conor Lawlor, managing director of capital markets at UK Finance, the banking industry body, said: “Dynamic and well-functioning capital markets play a critical role in supporting the real economy in the UK and for them to remain competitive globally we need to act now to ensure that they are also fit for the future.”

Additional reporting by Nikou Asgari in London