Pension funds have raised concerns that the Financial Conduct Authority’s (FCA) proposed equity listing rule reforms will make UK-listed companies less attractive to investors and dilute shareholders rights.
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.
In response to the consultation – which closed today – Railpen together with nine other signatories, including 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 a letter responding to the FCA.
The pension funds welcomed the current conversation on creating a “vibrant UK capital market”, however they warned that the watchdog’s proposed reforms will not lead to “the healthy capital markets we all want”.
Instead, the signatories believe the proposed changes would exacerbate the current issues by making UK-listed companies less attractive to investors.
In addition, signatories believe 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.
The letter continued that while signatories were previously supportive of policymakers efforts to support investors in undertaking robust stewardship in members’ best interest, the current proposals risk “undoing much of the progress achieved” by fundamentally reducing shareholder protections in a way that would ultimately leave scheme members exposed to more significant risks and higher costs.
From conversations with portfolio companies, initial public offering (IPO) advisers, and managers, the signatories said that innovative companies are primarily looking for “fair valuations, a stable policy, economic, and political environment, with a deep, liquid pool of thoughtful and long-term domestic and international capital”.
PLSA warns of reduced standards
Similarly to Railpen and the other pension funds, the Pensions and Lifetime Savings Association (PLSA) has also issued a warning that the proposed changes will reduce the standards expected of existing companies, instead of increasing the number of listed companies.
In response to the consultation, the PLSA said it believes the proposed changes would weaken shareholder rights by removing some important checks and balances, in particular for asset owners and retail investors, leading to a lack of diverse input and challenge from asset managers to companies.
The associaiton agreed that there had been a decline in IPOs in the UK, not just across the premium segment but across other segments too. However, it said that it is not proven that governance standards and investor protections required by a premium listing are, specifically, the root cause of the decline in IPOs across both the main market and the Alternative Investment Market.
As capital markets are complex, the PLSA said it would be supportive of an evidence-based, cross-governmental investigation into the root causes of this decline, which could then provide the appropriate basis for solutions which genuinely make a difference and continue to require shareholder approval in circumstances which warrant this.
It added that international investors have told its members the UK market is considered attractive and is able to hold its own against other financial markets due to high corporate governance standards and robust investor protections.
However, the association believes the current FCA proposals may not result in more companies listing, but will reduce the standards expected of existing companies by diluting quality universally.
Joe Dabrowski, deputy director of policy at the PLSA, said: “The UK is an attractive market for international investors precisely because our governance standards are high. Companies achieving a UK listing is a powerful signal that a company is well-run and well-placed to thrive now and over the long term.”
He added that the new rules “run the risk of having a contrary effect to what is hoped for”, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies.
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