Pension funds int he UK have written to the Financial Conduct Authority (FCA) to reiterate their concern over the listing rules and that the views of investors or the impact on savers have been taken into account.

A letter was signed by Caroline Escott, chair of the Asset Owner Council UK Corporate Governance Group,; Robert Branagh, cheif executove officer of London Pensions Fund Authority; Adam Matthews, chief responsible investment officer at Church of England Pension Board; Dan Mikulskis, chief investment officer at People’s Partnership; David Murphy, CEO of the Northern Ireland Local Government Officers’ Superannuation Committee (NILGOSC); Andrew Thornton, chair of the West Yorkshire Pension Fund; and Faith Ward, chief responsible investment officer at Brunel Pension Partnership.

In the letter dated 21 June 2024, the pension funds said they want to see the UK continue to thrive as a global financial centre. However, they said that they do not believe that the CP23/31 proposals will lead to the healthy capital markets they want to see.

The FCA has said its proposals would “create a simpler, more disclosure-based listing regime with a single commercial company category […] aimed at helping boost UK growth and competitiveness by making our regime more attractive to a wider range of companies, so they list and grow here.”

This should also provide greater opportunities for investors, the FCA said in its latest update, while still keeping high standards of disclosure so shareholders retain the ability to exercise stewardship and other rights to influence company behaviour. This also involves some re-balancing of risk as part of ensuring the market overall supports the risk appetite the economy needs, it added.

However, the pension funds said in the letter to the FCA that the rules will make the UK less appealing as a destination for capital, “exacerbating the current issues by making UK-listed companies less attractive to the kinds of high-quality, long-term investors that both our pre- and post-IPO companies tell us they are looking for”.

They added that in turn, this could raise the cost of capital for UK-listed companies as investors require a higher return for the increased risk.

With FCA planning to publish the final rules this summer, the pension funds reiterated that healthy capital markets need to be attractive both to companies and to investors.

The pension funds said: “We therefore strongly encourage the FCA board to listen to the investor community, take its time – given its parliamentary accountability – to understand the post-election backdrop and parliament, and retain the critical shareholder rights that have helped the UK build a reputation as the world’s ‘quality’ market and provided it with one of its few key differentiators.

“We would welcome the opportunity to discuss these issues further,” they said.

ICGN letter

The letter builds on a separate letter sent to the FCA on 13 June by International Corporate Governance Network (ICGN) which expressed concerns that the voice of investors was being ignored.

It pointed out that the consultation document issued by the FCA noted that investors had expressed strong concerns over the proposed reforms and despite investors’ concerns, the FCA maintained its proposals, and went further by removing a key investor protection mechanism: the mandatory time-based sunset clause for dual-class shares.

The ICGN letter signatories said they agreed with the goal of a well-functioning and vibrant market but were concerned that this was not the way to achieve it. Strong shareholder rights and protections are important, they said.

“Our members are investing hard working people’s savings and pensions, and the UK governance system of accountability to shareholders plays a critical role in protecting those end investors.

“We would strongly suggest that the FCA considers retaining these critical protections. On dual class shares, academic evidence points to there being no benefit to company value from dual class structures lasting more than seven years. Could the UK consider sunsetting clauses after seven years from IPO?,” they wrote.

The signatories added: “We also strongly believe that the votes on significant transactions and related party transactions provide useful protections for investors and that removing them exposes unnecessary risks.”

Signatories of the ICGN document iincluded the Council of Institutional Investors (CII), Associação de Investidores no Mercado de Capitais (AMEC) in Portugal, Australian Council of Superannuation Investors (ACSI), Investor Coalition for Equal Votes (ICEV), Assogestioni in Italy, the Asian Corporate Governance Association (ACGA), and Canadian Coalition for Good Governance (CCGG).

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