The City watchdog will trigger the biggest shake-up of London stock market rules in more than 30 years this month, in an attempt to make the UK a more attractive place to list shares.
The Financial Conduct Authority (FCA) confirmed on Thursday it would streamline and loosen rules for listed companies on 29 July, after months of hand-wringing over an exodus of companies from the London Stock Exchange for rival financial hubs.
The revamped rules will scrap the UK’s two-tier system of standard and premium listings. The premium listing heaped extra requirements on companies in exchange for a more prestigious label and entry into FTSE-branded indices.
Ditching the premium label means companies will no longer have to hold shareholder votes before approving large mergers or takeovers. While current rules have been criticised by some for delaying or increasing the cost of standard deals meant to help companies grow, the change has raised concerns about eroding shareholder democracy.
Companies will soon operate under one set of rules, simplifying what some industry bodies have claimed was a “complex” and costly listing regime.
“Our aim 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’s chief executive, Nikhil Rathi.
The changes are a result of recommendations put forward in 2021 by Jonathan Hill, a former EU commissioner for finance. The FCA has already slashed the proportion of shares that must be offered to outside investors from 25% to 10%, and allows companies to issue dual-class shares that give founders more control of listed firms, in response to Lord Hill’s report. Both sets of rules came into force in December 2021.
It is also hoped that the latest changes reduce the number of companies leaving or snubbing London for overseas rivals, including the US.
“The need for change is clear and widely acknowledged,” Rathi said. “The risk otherwise is that our regime falls increasingly out of step with those of other jurisdictions, making it less likely that companies eager to grow choose the UK as a place to list their shares.”
The investment platform AJ Bell said the overhaul came with “some serious potential negatives”.
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“The government is clearly desperate to bolster UK listings as part of efforts to revitalise the City of London,” said Dan Coatsworth, an investment analyst at AJ Bell.
“The FCA’s reforms risk diluting the quality of the UK stock market to a house made out of balsa wood. This includes giving shareholders less of a voice on matters like acquisitions, even though they are a company’s owners.”
In May, the owner of Paddy Power, Flutter, announced it would switch its primary listing to New York, while the UK chip designer Arm opted to list on Wall Street last August after the government failed to convince it to float in London. The British fund supermarket Hargreaves Lansdown said in June it would accept a proposed offer from private equity investors, which would leave another hole in the FTSE 100 index.