UK planning to loosen IPO rules amid angst over dearth of deals

BLOOMBERG

The UK is proposing “significant changes to the listing rulebook” in a bid to make London more attractive as a financial centre with its moribund capital markets stoking fears about the city’s ability to compete with New York and Asian hubs.
The Financial Conduct Authority (FCA) wants to replace its premium and standard listing categories with a single offering in a bid to attract more companies, according to a statement.
The regulator said the changes would make UK listings less complicated and onerous. It would make it easier for companies to have two classes of shares, which is favoured by some entrepreneurs who want to keep control of their businesses even after they have gone public, and would remove mandatory shareholder votes, including on acquisitions.
Any reduction in rules would shrink investors’ protections and that requires a wider public debate, the FCA said. “What we are trying to do with these reforms is attract more companies, but also recognise that by bringing high growth companies, you’ll bring in more risk to our market,” the FCA’s director of market oversight Clare Cole said on Bloomberg Radio.
The proposals follow a dramatic drop in the number of new listings in London as other companies seek to move their shares to New York. That’s renewed concerns about whether the UK can retain its place as one of the world’s top financial centres amid challenges such as less liquid markets after Brexit and lower investor appetite for growth stocks compared to the US and Asia.
“The changes in themselves are welcome, although their impact is likely to be limited,” said Nicholas Holmes, head of equity capital markets at law firm Ashurst. “The challenges to London’s equity capital markets status run much deeper.”
The loss of listings is among several issues cutting against Prime Minister Rishi Sunak’s efforts to portray the post-Brexit UK as an inviting destination for investment.
Microsoft Corp President Brad Smith said the UK competition authority’s rejection of the company’s takeover of gaming firm Activision had left his confidence in the country “severely shaken” while Burberry Group Plc Chairman Gerry Murphy told Sunak that denying tourists the ability to refund VAT payments was a “spectacular own goal.”
The criticism comes against the backdrop of a resurgent Labour opposition under Keir Starmer that has sought to position itself as more business-friendly, as it seeks to return to power for the first time since 2010 in a general election slated for 2024.
The Square Mile welcomed the proposals but urged more changes. “The work mustn’t stop here,” said Chris Hayward, policy chairman at City of London Corporation. Andrew Griffith, the City minister, described the move as “an important step forward,” noting in a statement “it is important our rule book keeps pace with practices elsewhere.”
Julia Hoggett, the chief executive officer of the London Stock Exchange, described the changes as “just one element of the reforms needed to improve the competitiveness of the UK’s capital markets.”
The FCA has enacted a string of reforms after Jonathan Hill’s listings review in 2021, including lowering the required free float and allowing some dual share classes. It has now launched a fresh consultation until June 28 to potentially cut more burdens involved in a premium listing, which historically made companies eligible for inclusion in FTSE indexes. Implementing the outcome of the consultation would happen later this year or early in 2024.
Pressure is also rising on the government to reform the UK’s pensions regulations to make it easier for hundreds of billions of pounds in retirement savings to be directed into investing in British companies.