The UK pensions industry has expressed its disappointment with the Financial Conduct Authority (FCA) as it has published its final version of UK listing rules, with officials saying their concerns over shareholder protection have not been heard.
The FCA branded the new rules as “the biggest change” to the listing regime in over three decades.
It said: “They aim to support a wider range of companies to issue their shares on a UK exchange, increasing opportunities for investors.”
In the rules published today, the FCA set out a “simplified” listing regime with a single category and streamlined eligibility for those companies seeking to list their shares in the UK.
The watchdog said the overhaul of listing rules “better aligns” the UK’s regime with international market standards and ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account.
It also added that the new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. However, shareholder approval for key events, such as reverse takeovers and decisions to take a company’s shares off an exchange, is still required.
The new rules will apply from 29 July 2024.
Throughout the consultation process, investors have repeatedly expressed their concerns over the listing rules reforms and according to commentators “have not been heard”.
Jen Sisson, chief executive officer of the International Corporate Governance Network (ICGN), said: “It is disappointing to see what feels like a polarising approach, pitting management and their advisors against the company’s owners – the shareholders.
“The interests of shareholders and management should be aligned in creating long-term value. The risks to shareholders are clear, the benefits of these reforms are not.”
Sisson pointed out that today’s changes mean that shareholders, the owners of companies, will no longer have a right to vote on significant and related party transactions.
She said those votes are an important protection for minority investors, ensuring that large shareholders and company directors do not unfairly benefit from their position.
“We are concerned by the introduction of dual-class share structures, which create entrenched power in the hands of a small number of investors, disproportionate to their ownership stake. It disadvantages ordinary investors, taking away accountability mechanisms and making it hard for their voice to be heard,” she explained.
Sisson added that the FCA’s changes create a system that makes the usual dual-class share issue even more complicated.
“Institutional investors may only hold dual-class shares for a 10-year period, but there is no limit on how long other holders – such as founders or other insiders – may hold this type of shares,” she said, adding: “This is neither simplified nor streamlined, and fails to protect minority shareholders. All dual-class shares should have sunset clauses. One share should equal one vote.”
Caroline Escott, acting head of sustainable ownership at Railpen, also expressed concern over the final UK listing rules.
She said that an opportunity “has been lost” to truly make UK capital markets an environment where all the parties necessary to create long-term value can cooperate and have a voice.
She said the industry presented compelling evidence in support of the benefits of robust investor protections, both to the UK as a global financial centre, and to outcomes for everyday savers.
She added: “It is a shame that this evidence, and the widely-held concerns of investors and consumer representatives, have not been heeded.”
However, she said it is welcomed that the FCA is “open” to suggestions of class-by-class vote disclosure at companies with dual-class share structures (DCSS).
She said: “This information would be useful to boards and investors in helping them understand the independent shareholder perspective on material issues. The methodology for doing so will need to be carefully considered, and we look forward to working with the FCA and others on this.”
Lindsey Stewart, director of stewardship research and policy and Morningstar Substainalytics, said that today’s announcement suggests that the “side favouring deregulation has prevailed when it comes to designing the shape of listing regulations this time around”.
Stewart said the new rules “represent a gamble over whether the UK can build more attractive markets by introducing features that many of the largest investors are opposed to.”
James Lowen, senior fund manager of the JOHCM UK Equity Income Fund, said the changes should be welcomed, as they will, with other recent changes, increase the attractiveness of the UK equity market.
However, he said the changes to date have been incremental and more will need to be done, such as mandated domestic allocations for pension funds, removal of stamp duty, to fully restore the UK market competitiveness on the World stage and remove the material valuation discount the UK trades on, that itself, puts off new companies listing on the market.
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