Norway’s sovereign wealth fund has increased its criticism of the UK’s financial watchdog over its grand plan to attract more companies to list in its jurisdiction, taking exception particularly to the more permissive approach to dual-class shares.

Responding to the Financial Conduct Authority’s (FCA) detailed proposals for listing rule reforms published in December as part of its ongoing UK Primary Markets Effectiveness Review, Norges Bank Investment Management (NBIM), said it appreciated the FCA’s aim of achieving a stronger UK listed market, and saw that reduced numbers of initial public offerings (IPOs) had been hard for the UK and other markets in recent years.

“However, we are concerned that the FCA’s efforts to boost listings by lowering corporate governance requirements will undermine the UK’s reputation as a market with robust investor protection, and might ultimately not be successful in driving companies’ IPO locations,” wrote Carine Smith Ihenacho,
NBIM’s chief governance and compliance officer, and Elisa Cencig, head of policy engagement, in the letter to the FCA.

In the response, which builds on and expands criticism levelled at the UK reform last summer by NBIM, the pair said: “As a global investor, we are concerned about reforms to weaken investor protection driven by the aim to attract primary listings.”

The Oslo-based central bank arm – which manages the NOK17.5trn (€1.5trn) Government Pension Fund Global (GPFG) – also said it was unconvinced that corporate governance requirements were the key in determining where a company listed.

Carine Smith Ihenacho at NBIM in New York

Carine Smith Ihenacho at NBIM

“Allowing dual class shares on a broader scale hinders the effectiveness of voting, which is the key tool used by investors to play their role in monitoring corporate governance at investee companies,” said Smith Ihenacho and Cencig.

“Any deviation from the ‘one share, one vote’ principle should be contained and subject to appropriate safeguards,” they said, adding they were sorry the FCA had now decided to do the opposite and remove the previously-suggested 10-year sunset clause.

“We encourage the FCA to reconsider this approach and require that any multiple class share mechanism lapses automatically after a certain number of years (preferably 5),” the NBIM pair wrote.

In December, when the FCA began consulting on the detailed proposed measures it had drawn up for its UK primary markets effectiveness review exercise, the authority described the reforms as the most far-reaching for the UK’s listings regime in three decades.

“Thriving capital markets are critical to building the conditions for a strong and sustainable economy that allows innovation, growth, and investment,” it said.

The FCA said it would continue to contribute to encouraging “a wide and diverse range of companies to list in the UK, and for investors and markets to have greater choice and opportunity in a healthy and thriving public markets ecosystem”.

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