The Financial Conduct Authority (FCA) has published proposals for a UK listing regime, however, pension funds believe their concerns over weakened corporate governance have not been taken into account.

Since 2008, the number of UK listed companies has fallen by 40%. As a result the FCA launched a consultation last year proposing to replace standard and premium listing share categories with a single listing category for commercial company issuers of equity shares.

Today, the FCA published its detailed proposals on what the new regime could look like.

It said that establishing a singular process with “streamlined eligibility” could encourage a “greater range of companies” to list in the UK.

The FCA has also retained the idea, set out in the earlier consultation, which would remove the requirement for mandatory shareholder approval of significant transactions. However, it said that shareholder approval for key events such as reverse takeovers and de-listing would remain.

The Authority acknowledged that the proposals could entail an increased possibility of failures, but the changes set out would “better reflect” the risk appetite the economy needs to achieve growth, it added.

Bond and derivatives

Today, the FCA also delivered a key element of the Edinburgh Reforms – a set of reforms to drive growth and competitiveness in the financial services sector – by confirming the regulatory regime for a bond market consolidated tape.

The tape will provide investors with trade and sales data quicker and more cheaply. The Authority is expected to outline the next steps for shares in 2024.

Additionally, measures to significantly increase the information that is published in real time have been set out which FCA said will improve the bond and derivative markets’ ability to establish a fair price, and help investors buy or sell.

The FCA said that these proposals will make sure that data that will go into the forthcoming bond consolidated tape is standardised, complete and of high-quality.

It added that proposals will also help investors hold their brokers accountable which will improve the competition for their services and enable market participants to manage risk and maintain market stability.

Sarah Pritchard, executive director for markets and international, at the FCA, said: “We are working to strengthen the attractiveness of UK capital markets and supporting UK competitiveness and growth.

“As we do so, it is important that others consider what they in turn can do, to make sure the UK remains an attractive place for companies to raise capital.”

Pritchard added that the UK is a world leader for bond and derivative markets, and the FCA wants to make it better by ensuring investors have access to better, quicker, clearer and cheaper data.

Bim Afolami, economic secretary to the Treasury, agreed that the UK is Europe’s leading hub for investment but added that it’s a “competitive world and we are by no means complacent”.

He said: “We want to make the UK the global capital for capital, attracting the brightest and best companies in the world. We are strengthening the UK as a listing destination, taking forward reforms to make it quicker to list, improve disclosure and make our capital markets more efficient and open.”

Caroline Escott at Railpen

Caroline Escott at Railpen

Weakened corporate governance

Caroline Escott, senior investment manager at Railpen and chair of the Investor Coalition for Equal Votes (ICEV), agreed that high-quality, engaged investors and high-growth, dynamic companies are vital to ensuring the UK’s capital markets can thrive.

However, she said that there is little sign that the widely-held and clearly-communicated investor concerns about weakening corporate governance standards have been taken into account.

When the consultation closed on 28 June, Railpen along with nine other signatories – Brightwell, Brunel Pension Partnership, The Church of England Pensions Board, HSBC Bank Pension Scheme, Merseyside Pension Fund, NEST, People’s Partnership, TPT Retirement Solutions and Universities Superannuation Scheme (USS) – published an open letter urging the watchdog to “put brakes” on the UK listing regime.

In the open letter, the signatories welcomed the current conversation on creating a “vibrant UK capital market”, however they warned that the watchdog’s proposed reforms would not lead to “the healthy capital markets we all want”.

Instead, the signatories said the proposed changes would exacerbate the current issues by making UK-listed companies less attractive to investors.

In addition, signatories said that the current proposals would roll back fundamental investor protections, such as the right to a shareholder vote on both significant and related party transactions, as well as the equal voting rights that serve as the foundation of a fair and democratic capitalist system.

The letter added that diluting shareholder rights meant that investors would find it more challenging to act as effective stewards of their assets.

Equal votes

Escott added that the latest consultation has taken a “backwards step” on a key shareholder right to an equal vote.

She said: “Backtracking on mandatory time-based sunset clauses on unequal voting rights is particularly worrying considering recent research from the $2.5trn Investor Coalition for Equal Votes (ICEV), which Railpen chairs.”

Earlier this month research from ICEV showed that any benefits accruing to firms from dual-class share structures diminish within a few years after listing.

Escott said: “It is therefore not in the interests of companies, investors and their beneficiaries, and capital markets as a whole to maintain dual-class structures over the mid- to long-term.”

Escott added that ICEV will continue engaging with policymakers and making the case for an evidence-based approach that fully considers the needs of investors, companies and everyday savers alike.”

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