The UK is proposing “significant changes to the listing rulebook” in a bid to make London more attractive as a financial center with its moribund capital markets stoking fears about the city’s ability to compete with New York and Asian hubs.
(Bloomberg) — The UK is proposing “significant changes to the listing rulebook” in a bid to make London more attractive as a financial center with its moribund capital markets stoking fears about the city’s ability to compete with New York and Asian hubs.
The Financial Conduct Authority wants to replace its premium and standard listing categories with a single offering in a bid to attract more companies, according to a statement Tuesday.
The regulator said the changes would make UK listings less complicated and onerous. It would make it easier for companies to have two classes of shares, which is favored by some entrepreneurs who want to keep control of their businesses even after they have gone public, and would remove mandatory shareholder votes, including on acquisitions.
Any reduction in rules would shrink investors’ protections and that requires a wider public debate, the FCA said.
“What we are trying to do with these reforms is attract more companies, but also recognise that by bringing high growth companies, you’ll bring in more risk to our market,” the FCA’s director of market oversight Clare Cole said on Bloomberg Radio.
The proposals follow a dramatic drop in the number of new listings in London as other companies seek to move their shares to New York. That’s renewed concerns about whether the UK can retain its place as one of the world’s top financial centers amid challenges such as less liquid markets after Brexit and lower investor appetite for growth stocks compared to the US and Asia.
“The changes in themselves are welcome, although their impact is likely to be limited,” said Nicholas Holmes, head of equity capital markets at law firm Ashurst. “The challenges to London’s equity capital markets status run much deeper.”
Sunak Struggles
The loss of listings is among several issues cutting against Prime Minister Rishi Sunak’s efforts to portray the post-Brexit UK as an inviting destination for investment.
Last week, Microsoft Corp. President Brad Smith said the UK competition authority’s rejection of the company’s takeover of gaming firm Activision had left his confidence in the country “severely shaken” while Burberry Group Plc Chairman Gerry Murphy told Sunak that denying tourists the ability to refund VAT payments was a “spectacular own goal.”
The criticism comes against the backdrop of a resurgent Labour opposition under Keir Starmer that has sought to position itself as more business-friendly, as it seeks to return to power for the first time since 2010 in a general election slated for next year.
The Square Mile welcomed the proposals but urged more changes. “The work mustn’t stop here,” said Chris Hayward, policy chairman at City of London Corporation. Andrew Griffith, the City minister, described the move as “an important step forward,” noting in a statement “it is important our rule book keeps pace with practices elsewhere.”
Julia Hoggett, the chief executive officer of the London Stock Exchange, described the changes as “just one element of the reforms needed to improve the competitiveness of the UK’s capital markets.”
The FCA already enacted a string of reforms after Jonathan Hill’s listings review in 2021, including lowering the required free float and allowing some dual share classes. It has now launched a fresh consultation until June 28 to potentially cut more burdens involved in a premium listing, which historically made companies eligible for inclusion in FTSE indexes. Implementing the outcome of the consultation would happen later this year or early in 2024.
“If implemented, London would be able to stand toe to toe with our international competitors,” Hill said in a statement. “I agree that we certainly need to have a wider debate about risk and growth.”
In a speech in March, FCA CEO Nikhil Rathi said “politically and culturally,” questions needed to be asked about various parties are comfortable moving to a system dependent on disclosure rather than detailed rules.
“If we move down this route, there will need to be clear acceptance that some investors, even those who do read and understand every word of the disclosure, will lose money,” Rathi said. “When these events happen, there can be no question of compensation for those investors left nursing losses on the grounds of perceived regulatory failure.”
Arm Move
The changes come during a highly-charged debate about London’s future. A decision by Cambridge-based technology company Arm Ltd. to list in New York after considering a premium dual listing in both the UK and US sparked criticism of the FCA for not relaxing related party transaction rules — a condition Arm was reported to have wanted.
Dublin-based CRH Plc, one of Europe’s biggest building materials companies, is moving its primary listing to New York from the UK, while gambling company Flutter Entertainment Plc last week said it has secured shareholder backing to pursue an additional US listing.
Still, Deutsche Bank AG’s’s decision to buy London-based broker Numis, which was announced on Friday, was seen as a vote of confidence in the city’s long-term future.
Pressure is also rising on the government to reform the UK’s pensions regulations to make it easier for hundreds of billions of pounds in retirement savings to be directed into investing in British companies. While there is widespread support for those changes, there are also concerns about potential risks that retirement funds may suffer.
–With assistance from William Shaw, James Woolcock, Lizzy Burden and Caroline Hepker.
(Updates with Cole and LSE comments.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.