Nik Paskevic solicitor in our Corporate and Commercial team introduces the UK Government’s planned review of the financial services rules book.
The UK Government has appointed Jonathan Hill, the former EU Commissioner, to review the UK’s financial services rulebook, with the aim of tailoring the FCA’s Listing Rules more precisely to the needs of British companies, so as to encourage more high-quality UK equity listings and public offers.
Whilst the list of matters up for review are non-exhaustive, the categories up for review are as follows; –
Free Float
The Listing Rules generally require that no less than 25% of a company’s shares are held in public hands. Is this threshold potentially too high in that it acts as a deterrent? Should it be reduced?
Dual Class Shares
Listing Rules for LSE’s Main Market’s premium segment do not permit dual class shares to be admitted, thus all shares must be of the same class. This could potentially act as a deterrent to founder led businesses who wish to retain control of the business via weighted voting rights, or increase the company’s risk of initial takeover threats once going public, which may otherwise be avoided by weighted voting rights. Should the Listing Rules therefore permit two or more classes of shares to be admitted that, among other matters, carry different voting rights, or would that be an unacceptable intrusion into shareholders authority? If so, what limitations should apply?
Track Record
To be eligible for admission to a premium segment of the Main Market companies have to demonstrate a sustainable revenue track record for a period of at least three years. Could such stringent requirement inadvertently create a barrier to entry? What could the alternative track record be?
Prospectuses
The requirement to produce a Prospectus is usually a centrepiece of most IPO’s, which is considered by many as lengthy and costly process which may act as a deterrent/barrier to certain companies. Presently, a Prospectus is required where, for example, a company offers securities to more than 150 non-qualified investors. The review will look at whether the requirements for when a Prospectus is required are appropriate for the UK market, including whether companies that are already listed should be able to more easily raise new capital.
Dual Listings
As the UK seeks to attract companies already listed in other markets, the review will aim to look at whether the current requirements on eligibility are presently sufficient, and whether there is a case to introduce differentiated entry requirements for the UK’s premium listing segment in respect of such dual listings, which currently includes a high standard for entry.
Other Actions
In addition to above, the review will also seek to set out any other specific non-regulatory, non-legislative actions which the UK Government could take to boost UK IPO’s and optimise the capital raising process for large and small companies on UK markets.
Conclusion
As Lord Hill is likely to provide a report on the various recommendations to the UK Government and FCA early in January/February 2021, and as the UK Government will likely aim to move fast in light of the UK’s new ability to assert itself from the EU’s legal and regulatory landscape, companies should be prepared for a number of reforms to the Listing Rules to be announced early this year.
If you need advice or help regarding Corporate & Commercial matters, please contact Nik Padkevic or another member of our expert Corporate & Commercial Team on 020 7631 4141 or you can email company@bishopandsewell.co.uk.
The above is correct as at 15 January 2021. The information above may be subject to change as this is a constantly evolving situation.
