The FCA has launched a consultation on a series of proposed reforms to improve the effectiveness of UK primary markets, alongside a discussion of how it might continue to develop the regime to ensure the UK remains a competitive and dynamic market. Recently, both the UK Listing Review, chaired by Lord Jonathan Hill, and the Kalifa Review of UK FinTech have made specific recommendations for improvements to the regime. The FCA’s suggested reforms seek to address, and build, on the proposals in these important reviews to ensure that the UK remains an attractive place to grow and list successful companies.
The changes aim to reduce barriers to listing for companies and, as a consequence, increase the range of investment opportunities for consumers on UK public markets. The FCA is also proposing measures to ensure the listing regime continues to have high standards of market integrity and to simplify its rulebook. The proposals include allowing a targeted form of dual class share structures in the premium listing segment and reducing the required free float from 25% to 10% in certain circumstances.
The FCA’s proposals respond to the changing nature of companies coming to market. They aim to broaden investor access to companies in higher growth sectors by improving flexibility and accessibility in the FCA’s listing regime as a gateway to the UK’s main public markets.
The FCA continues to prioritise high standards of corporate governance and shareholder protections and, in doing so, this review seeks feedback on the way some of the rules work and whether they could be refined and enhanced to support the sustainable growth of these companies. More companies raising capital on public markets at an earlier stage in their life cycle means more opportunities for investors to share in the returns of those companies as they grow.
The FCA is therefore consulting on the following measures:
- Allowing a targeted form of dual class share structures within the premium listing segment to encourage innovative, often founder-led companies onto public markets sooner, and so broaden the listed investment landscape for investors in the UK.
- Reducing the amount of shares an issuer is required to have in public hands (i.e. free float) from 25% to 10%, reducing potential barriers for issuers created by current requirements.
- Increasing the minimum market capitalisation (MMC) threshold for both the premium and standard listing segments for shares in ordinary commercial companies from £700,000 to £50 million. Raising the MMC will give investors greater trust and clarity about the types of company with shares admitted to different markets.
- Making minor changes to the Listing Rules, Disclosure Guidance and Transparency Rules and the Prospectus Regulation Rules to simplify the FCA’s rulebooks and reflect changes in technology and market practices.
Alongside this, and as part of the same paper, the FCA has set out a discussion seeking views on the overall structure of its listing regime and whether wider-reaching reforms could improve the longer-term effectiveness of the regime. The discussion paper seeks to understand the value placed by market participants on different aspects of the FCA’s current regime as well as to gather views on how the regime might be modernised.
Clare Cole, Director of Market Oversight at the FCA commented on the proposals:
‘Effective public markets are critical in enabling companies to finance their businesses, which in turn creates growth and jobs for the UK economy. These proposals are essential if we intend for the UK to continue to be a modern and dynamic market. Today, we are acting assertively to meet the needs of an evolving marketplace.
‘Our proposals should result in a wider range of listings in the UK, and increased choice for investors while we continue to ensure appropriate levels of investor protection. They are intended to encourage high quality companies to list earlier, and so increase the possibility of a wider investor base being able to access growth in these companies.’
The FCA is consulting for 10 weeks on these proposals with a closing date of 14 September 2021. Subject to consultation feedback and FCA Board approval, it will seek to make relevant rules before the end of 2021. On the discussion areas, the FCA will provide feedback and potentially consult further on wider listing regime changes in due course, if appropriate.