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FCA discussion paper on further UK listing regime reforms

FCA publishes discussion paper on replacing current premium and standard listing segments with new single listing segment and sponsor regime reforms

On 26 May 2022, the FCA published a discussion paper (DP22/2) seeking views on the establishment of a new single listing segment to replace the current premium and standard segments for equity shares in commercial companies. The paper follows on from the FCA's 2021 consultation on primary market effectiveness (CP21/21) and Lord Hill's UK listing review recommendations. The paper also sets out the FCA's view on the role of the sponsor regime and how it could fit into any wider reforms.

 

Single listing segment 

The key features of the proposed new single listing segment are:

  • a single set of universal eligibility criteria based on the current premium listing requirements;
  • two sets of continuing obligations following listing: a minimum "mandatory" set and another set of enhanced "supplementary" obligations that may be opted into by the listed company; 
  • all issuers denoted as having a "UK listing" without segmental distinction, although levels of continuing obligations compliance would be clearly labelled;
  • sponsor regime retained and appointment of a sponsor extended to all companies listing on the new single segment;
  • moving to a disclosure-based approach to financial eligibility that removes the requirement for a three-year representative revenue earning track record, three years' of audited historical financial information representing at least 75% of the issuer's business and a "clean" working capital statement; and
  • transitional provisions meaning current standard listing issuers would not be forced to either move to the new single segment or de-list and, potentially, shareholders of existing premium issuers would vote on whether to comply with the new "supplementary" set of continuing obligations. 

 

Eligibility requirements

The new single segment would have a single set of universal eligibility criteria based on the current premium segment eligibility requirements. All issuers listing on the new single segment would also be required to appoint a sponsor. This would, in the FCA's view, remove any eligibility differential between issuers at the point of listing.

The paper also considers replacing the current premium financial eligibility requirements with a disclosure-based regime that would allow investors greater scope to consider the financial characteristics of each issuer on an individual basis. 

This would remove the long-standing premium listing requirement for a three-year representative revenue earning track record, three years' of audited historical financial information representing at least 75% of the issuer's business and a "clean" or unqualified working capital statement (which the FCA acknowledge in any case may remain important to investors).

 

Continuing obligations

The new single segment would re-categorise post-listing continuing obligations into two groups: a minimum set of "mandatory" continuing obligations and a "supplementary" set of enhanced obligations that issuers could choose to adopt. Issuers would decide on listing whether the "supplementary" set was suitable for them, taking into account their business and feedback from existing and potential shareholders. 

To avoid complexity, companies would be required to adopt either all or none of the supplementary provisions and moving in and out of the "supplementary" regime would require shareholder approval where appropriate.

The proposal aims to address feedback received by the FCA that, whilst the existing continuing obligations regime is valued, it can hinder certain business models and would benefit from allowing shareholders to decide what might be acceptable for an issuer on an individual basis:

  • "Mandatory" continuing obligations: would include the current related party requirements, shareholder approval for cancellation of listing, pre-emption rights, control of business rules and the current rules on rights issues and open offers (including the 10% discount limit); and
  • "Supplementary" continuing obligations: would include the significant transactions regime (where the FCA is also seeking views on revising the current class test thresholds), the controlling shareholder regime and the independent business requirement.

At the same time, the FCA is proposing a streamlining of its rulebook where eligibility criteria and continuing obligations overlap, with issuers simply required to confirm their ability to comply with the applicable continuing obligations.

 

Index inclusion

Whilst the FCA has acknowledged the relationship between changes to eligibility for listing and eligibility for the FTSE UK index series, it also reiterates in the paper that the setting of index inclusion criteria is not directly within its control (and it is therefore possible FTSE could require compliance with both the "mandatory" and "supplementary" continuing obligations for indexation). 

 

Dual class share structures

The paper seeks views on how the FCA should treat issuers with dual-class share structures ("DCSS") under the new regime, with one option being to permit only the restricted form of DCSS recently introduced on to the premium segment following CP21/21. The FCA acknowledges that this option would reduce flexibility against the current standard segment.

 

Transitional provisions

The paper acknowledges the need to consider how to transition existing issuers into any new single segment regime. This could involve shareholders of existing premium issuers voting on whether to comply with the new "supplementary" set of continuing obligations. It is also likely that transitional provisions would apply meaning issuers with a current standard listing would not be forced to either move to the new single segment or de-list. 

A separate listing regime would also be retained for "other" types of issuer with current standard listings, including SPACs, debt issuers and depositary receipt issuers. 

 

Sponsor regime

The paper states that the FCA considers the sponsor regime key to delivering its desired outcomes for the UK equity markets. The FCA is, therefore, seeking views on whether the sponsor regime should generally remain the same as now but be expanded to all issuers of equity shares in commercial companies listing on the single segment. The FCA notes that while its proposals would extend the sponsor regime to a wider range of issuers, other changes (such as making the significant transactions regime "supplementary" or raising the class test thresholds) may result in fewer occasions across an issuer's lifecycle where a sponsor is needed. 

The paper also acknowledges feedback received on possible inefficiencies in the sponsor regime and seeks further input on these, including record-keeping obligations, conflicts of interest and fee structures.

 

Next steps

The FCA has asked for feedback by 28 July 2022 and this may lead to either a further discussion paper or a full consultation on rule changes by the FCA. If you would like to discuss any matters related to this paper, please contact White & Case.

 

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