The Financial Conduction Authority (FCA) has amended the listing rules with effect from 29 July 2024 with the aim to “boost growth and innovation and ensure the UK listing system is more aligned with those in other markets”.
The new rules will make it simpler and more streamlined to list and to allow the UK public markets to compete more effectively with other international markets such as the US and EU. The aim of the FCA 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.
The amendments mark the biggest change to the listing regime in over three decades. With minimal IPO activity in London for the past two years, with an IPO pipeline of companies that postponed listing during this period, this rule change is cause for optimism.
In addition, with the victory for the Labour Party in the UK elections, capital markets sources are broadly positive, hoping for a Labour-led revitalisation of the UK IPO market.
Some of the most significant changes are detailed below:
A single listing category will be introduced – standard and premium listing requirements will be merged into a single “commercial companies” category.
There will be a transition category for companies that are already issuers of standard listed shares that do not meet other eligibility requirements, this category is closed to new issuers.
With regards to corporate governance, the Commercial Companies category will adopt the previous Premium listing requirement to disclose on an annual basis, how the issuer has complied with the principles of the UK Corporate Governance Code and highlighting any provisions that have not been complied with during that year giving explanations for this.
In relation to other disclosures, particularly climate-related and diversity, the FCA suggests using the requirements under what was the premium listing rules as a starting point for all commercial companies. Additionally, to make up for the removal of the standard listing, there will be an “International commercial companies secondary listing” category which will be geared towards companies incorporated outside of the UK with an overseas listing being able to obtain secondary listing in the UK.
There will no longer be a requirement for a shareholder vote on significant related party transactions for Commercial Companies.
The FCA highlighted that significant or related party transactions for closed-ended investment funds will also be brought in line with the requirements of the Commercial Companies. However, a shareholder vote will still be required for share buy-backs, reverse takeover transactions and delisting.
Issuers will be permitted to have dual/ multiple class share structures at admission.
This would mean that company founders or directors could have dual or enhanced voting rights for an unlimited period, which falls in line with other international markets. Enhanced voting rights have also been granted for up to 10 years to pre-IPO institutional investors such as those in private equity.
Shell companies and SPACs
Usually have 24 months to complete transactions or return money to investors. The updated rules allow for a 12 month extension up to three times if shareholder approval is obtained.
Closed ended investment funds category remains
The FCA has retained a separate listing category for closed ended investment funds.
Although the significant and related party transactions regime for closed-ended investment funds has been aligned more closely with that for commercial companies and will not require separate shareholder approvals or circulars for the majority of such transactions, instead cross-applying the disclosure regime for such transactions as it applies to the commercial companies category.
However, there will remain additional requirements for changes to the investment manager’s fees or other remuneration, requiring a sponsor’s fair and reasonable opinion at ≥0.25%, and shareholder votes and related circular requirements for changes of ≥5% or above, as well as uncapped fees. Otherwise, the sponsor role will continue to apply at the gateway and for continuing obligations as with commercial companies.
The rules on board independence have been clarified that notwithstanding an appointment to the board of more than one listed closed-ended investment fund that has engaged the same independent alternative investment fund manager (AIFM), a director can be considered independent where the AIFM is independent of the closed-ended investment fund’s investment manager.
Other changes to the UK Listing Rules
Other changes include updating ethnicity reporting categories, in line with changes made by the Office for National Statistics (ONS) in the 2021 census. The ONS removed the guidance “including Arab” from the “Other Ethnic Group” category, prompting the FCA to revise its definition of “minority ethnic background” accordingly.
The ONS’s updated categories allow respondents to identify with a broader range of ethnicities and provide additional details via an open “Other” box. The FCA in turn encourages companies to allow flexibility for individuals to identify within a broad range of groups, including religious groups, though further details on religious groups are not yet provided.
Companies wanting to list will have more relaxed requirements as historical financial information, revenue track record and clean working capital statements will no longer be required, however these disclosures will still need to be made within the prospectus.
Next step and actions
While many of the changes will only be relevant to companies undertaking transactions under the UKLR, there have been some terminology changes and a complete renumbering of the rules so there will be some actions that need to be undertaken by all listed companies, as follows:
- Ensure all listing rule references are updated in both internal and external documents and on the website to reflect the new UKLR references (e.g. do not just replicate old AGM posting or results announcements or director appointment announcements as the rule numbers will have changed);
- Ensure there are no references to a “premium listing” (now an “ESCC listing”), “Class 1” or “Class 2” transactions (now Class 1 transactions are “significant transactions”, and the concept of Class 2 transactions has been removed) or “LR” (which is now “UKLR”) in any documents or on the website (e.g. the Board reserved matters, committee terms of reference and MAR manual often contain these terms);
- Allow additional time for the preparation of the next Annual Report given the changes to the rule references and extra cross-checking that might be needed;
- Update Related Party and Significant Transactions policies (these policies will need a complete overhaul because of the number of changes in these areas); and
- When next appointing new directors, ensure an up-to-date directors’ duties memo is obtained reflecting the new regime.
In response to new UKLR, Richard Stone, Chief Executive of Association of Investment Companies (AIC) endorsed the updates to the listing rules, commenting, “The new Listing Rules will add momentum to the drive to make the UK’s capital markets more competitive. Public markets are essential to help mobilise private sector investment and kickstart economic growth. Investment companies rely on a thriving stock market and have an important role to play in funding growth. They invest in a broad range of assets from UK stocks and shares to infrastructure and private equity. The new Listing Rules support the competitiveness of investment companies, making it easier for them to undertake significant transactions and related party transactions.”
The UKLR sourcebook will apply from 29 July 2024 and the previous listing rules sourcebook will cease to have effect. The Policy statement which includes the final UK listing rules can be found here.
All premium listed companies will automatically migrate to the new Equity Shares (Commercial Companies) (ESCC) category; standard listed companies will move to a new transition category; and overseas companies with a secondary listing in London will have their own category.
UK MAR and the DTRs continue to apply in the same way and are largely unchanged.
The FCA have also signalled that they plan to launch a review of the UK’s prospectus rules over the summer period, which indicates further potential updates for companies to prepare for.
JTC is actively reviewing the updated requirements and clients’ information and documentation in response to the newly published UKLR and will be proposing appropriate updates and recommendations to clients in due course.
For more information on our listed services, please visit our website here: https://www.jtcgroup.com/services/funds/listing/
Please also do not hesitate to contact with Susan Fadil and Chris Gibbons to speak to us about preparing for these changes.
