The FCA has set out a simplified listings regime with a single category and streamlined eligibility for those companies seeking to list their shares in the UK. The regime is due to take effect on July 29. These changes comprise the biggest shake-up in the regime for over 30 years and include replacing the current two-tier system of standard and premium listings with one set of rules, as well as removing a requirement for companies to seek a shareholder vote on significant transactions.

The UK’s capital markets allow companies to raise capital, invest in expansion and innovation, and drive economic growth and job creation. They provide investors, including pension funds, with investment opportunities that can benefit from that growth. The UK’s capital markets need to operate efficiently and competitively to thrive on the global stage and contribute to the growth of the country. The aim of the new rules is to encourage a wider range of companies to choose to list, raise capital, and grow in the UK, while maintaining high standards of market integrity and consumer protection said the FCA.

“It has been heartening to see how the entire ecosystem has come together to achieve this ambitious objective.”

Dame Julia Hoggett, CEO, London Stock Exchange plc

Sarah Pritchard, Executive Director, Markets and International, at the FCA explained that a thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. “That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own”, she said.

Dame Julia Hoggett, CEO, London Stock Exchange plc, congratulated the FCA on delivering the largest set of reforms to the UK’s listing rules in decades. Celebrating the achievement, she told GRIP: “It has been heartening to see how the entire ecosystem has come together to achieve this ambitious objective. It will ensure that companies listed in the UK can benefit from a listing regime that better supports their growth ambitions, increases investment opportunities for UK investors and supports the UK economy.” 

Mandy Gradden, Chair of the Listing Authority Advisory Panel and Clare Woodman, Chair of the Markets Practitioner Panel, said that the rules “mark a pivotal step towards a brighter financial future for our capital markets. The FCA’s reforms to the listing rules prioritise clarity and accountability, and help create a fairer, more competitive landscape for companies and investors to thrive.

“It has been great to see the FCA acting at significant pace throughout the development of the new rules while engaging with such a wide range of voices.”

What’s included in the new rules?

The overhaul of listing rules better aligns the UK’s regime with international market standards. It also ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account.  

The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events, such as reverse takeovers and decisions to take the company’s shares off an exchange, is still required.  

The changes to listing rules follow extensive engagement across the market. The FCA has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth. 

The new rules will apply from July 29, 2024. 

“These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts.”

Rachel Reeves, UK Chancellor of the Exchequer

The UK’s new Chancellor of the Exchequer Rachel Reeves said: “The financial services sector is central to the UK economy, and at the heart of this government’s growth mission.

“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.”

The listing rules overhaul is part of the wider Edinburgh and Mansion House reforms begun by the previous Conservative administration. The Labour government is expected to continue with these reforms designed to encourage a greater investment by pension funds into UK assets.

Pritchard acknowledged that regulation is only part of the answer to help the UK achieve sustainable growth and that other factors also play a significant role in influencing where a company decides to list. “We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far”, she said.

Industry response

In response to CP23/31, the FCA found there was broad industry consensus on the need for change to the listings regime and the importance of vibrant UK listed markets. There were diverging views but the status quo was not an option.

There was support for a single and simpler category and for the extension of the role of sponsors to a wider variety of commercial companies. However, there remained a significant split in views on some of the key rules for commercial companies with listed equity shares, with a divergence in views on the overall strategic approach of moving away from ex ante controls, set by regulators, to a disclosure-based philosophy and system which puts information in the hands of investors so they can decide whether to invest.

“The final rules for the new listing regime confirm a shift to a more disclosure-based approach, putting information in the hands of investors so they can make informed decisions”, said Nikhil Rathi, Chief Executive, and Sarah Pritchard, Executive Director of Markets and International, and the FCA.

“The overhauled regime aims to deliver a more agile and globally competitive framework for companies to access the UK’s public markets earlier in their life cycles.”

Katya Gorbatiouk, Head of Investment Funds, London Stock Exchange

We spoke to James Parkes, a corporate Partner with law firm CMS about whether the rule shakeup will improve investor confidence. “There will be hope that the new rules provide the much-needed catalyst for renewed investor confidence in the UK market,” said Parkes. “The reforms are being implemented essentially as expected. But the decision to extend the use of ‘super’ voting powers under dual class share structures to institutional investors – a proposal that previously faced significant investor opposition on corporate governance grounds – is recognition of the need to prioritise the competitiveness of the UK market globally and move the dial away from an increasingly risk-averse investment environment.”

Katya Gorbatiouk, Head of Investment Funds, London Stock Exchange, was delighted with the reforms and told GRIP: “The new listing rules announced by the FCA represent a ‘once in a generation’ capital markets reform and are part of the broader reform agenda set in motion to support the UK’s economic growth and competitiveness.

“The overhauled regime aims to deliver a more agile and globally competitive framework for companies to access the UK’s public markets earlier in their life cycles, grow in line with their strategic vision and deliver positive shareholder outcomes, while being listed.”

Gorbatiouk explained how the new rules will work in practice to streamline processes: “The new rules, such as in relation to dual-class share structures and historical track-record requirements, create a streamlined pathway for fast growing and innovation-led companies to access public markets, thus adding more vibrancy to the constitution of the UK’s listed company universe and availing more opportunities for individual and institutional investors to participate in this growth.

“The reduction of events requiring regulatory involvement and shareholder approval removes undue barriers in executing strategic transactions, while placing greater responsibility with boards to substantiate and communicate their decision-making.

“The spirit of this reform is consistent with a disclosure-based approach that shifts the emphasis away from regulatory intervention to the investor making informed decisions, thus placing the companies, their investment stories, their governance and the quality of their investor engagement in the spotlight.“

However, not everyone is convinced the new rules will go far enough to attract investors. Rob Mason, Director of Regulatory Intelligence at Global Relay said: “This represents a simplified and streamlined process which may go some way to help making the UK more competitive. Questions remain whether these go far enough. The FCA has committed to further reviews which may be needed to materially attract investors.”