FCA Publishes Final Rules for Reformed Listing Regime

The FCA has published its final rules for a new UK listing regime and Policy Statement 24/6. The new UK Listing Rules (UKLRs) and accompanying transitional provisions will take effect from 29 July 2024. The rules follow an extensive consultation process, kickstarted by Lord Hill's UK Listing Review in 2021, which sought to enhance the attractiveness of UK capital markets.

In summary, there is a large degree of continuity flowing from the FCA's position set out in its December consultation - CP 23/31 - with some notable amendments. Importantly, the new rules retain the philosophy of a shift towards a more disclosure-based framework, whilst seeking to maintain robust levels of investor protection in key areas.

We have set out below the principal updates from the draft UKLRs published in March (see our previous briefings here and here).

Significant transactions

The FCA has retained the enhanced market notification regime for significant transactions – in lieu of a class 1 circular and shareholder vote - but has responded to concerns voiced in relation to its previous proposals by introducing additional flexibility for issuers in terms of both the timing and content requirements. For acquisitions, the FCA has removed the requirement for historical financial information on the target (or the alternative for a fairness statement); however, the approach for disposals is largely as previously set out, on the basis that the relevant financial information is usually more readily available in such cases. Whilst an announcement still needs to be made as soon as possible once the transaction terms are agreed, a new time-staged approach allows certain of the required information to be released subsequently as soon as possible, but in any event before completion. It is presumed, subject to confirmation, that the subsequent disclosure would be made in the form of one announcement once all the information has been gathered rather than drip-fed as the relevant information becomes available. A requirement has been introduced to make a final notification that completion has taken place, as soon as possible after its occurrence.

The FCA has abandoned the concept of a separate enhanced disclosure regime for companies in severe financial difficulty. Instead it has introduced more flexible guidance on its expectations for companies in this position and the types of information they should consider disclosing.

Controlling shareholders

This is an area where the FCA has vacillated over the course of the consultation process. Whilst the requirement that companies must be independent from any controlling shareholder (30+ per cent) has been retained, the FCA has now resolved not to impose a requirement for a controlling shareholder agreement as a way of demonstrating independence, in contrast to CP 23/31 proposals and the status quo. The FCA has, however, retained other features of the existing controlling shareholder regime, such as the two-stage voting procedure for the election and re-election of independent directors, and has introduced a new mechanism for directors to give a formal opinion on any resolutions proposed by a controlling shareholder where they consider the resolution is intended or appears to be intended to circumvent the proper application of the UKLRs. Whilst controlling shareholder agreements will no longer constitute a strict regulatory requirement at the point of an IPO, we would anticipate that they will nevertheless continue to be used as a practical way of demonstrating the requisite independence.

Dual class share structures

Despite strong opposition from the investor community, the FCA has retained its proposal to permit dual class share structures for commercial companies. Indeed, it has gone further in one respect: whereas previously it had limited enhanced voting rights to certain categories of individual investors, such as directors, the FCA is now allowing institutional investors (i.e. legal persons) to hold enhanced voting rights as well. However, the enhanced voting rights held by institutional investors will be subject to a 10-year sunset – in contrast to the enhanced voting rights held by specified natural persons that are without a time-based sunset clause.

Board declaration

The FCA has revised its approach to the board declaration which, under CP 23/31 proposals, would have required the board of an applicant to confirm that the applicant has established adequate procedures, systems and controls to enable it to comply with its obligations under the UKLRs and other rules. There are two welcome amendments to the original proposal: in relation to form, the declaration has now been softened and only requires a reasonable basis rather than an absolute commitment to the requisite standards and, in relation to timing, the declaration will only be required at the point of listing (i.e. not for subsequent applications).

Closed-ended investment funds

With its PS 24/6 proposals, the FCA has aligned the significant and related party transactions regimes for closed-ended investment funds more closely with the corresponding commercial companies requirements, requiring disclosure via announcements rather than shareholder approval for the majority of such transactions. The circumstances where a circular and shareholder vote are required for closed-ended investment funds are limited to amendments to certain arrangements with the investment manager, in particular, the investment manager's fees or other remuneration.

Shell companies

The FCA has proceeded with creating a separate listing category for shell companies, but has not implemented all of the requirements originally proposed. Notably and helpfully, the FCA no longer requires all shell companies to be set-up and treated as SPACs. In addition, SPACs can voluntarily put in place investor protections (such as ring-fencing public shareholder monies, shareholder approval and a board 'fair and reasonable' statement) to avoid a presumption of suspension - as per the current approach - but there is no longer a requirement to do so.

Sponsors

The central framework for the sponsor regime remains as per the CP 23/31 proposals. As opposed to the current position where a sponsor is only required for a premium listing company, sponsors will now be required for commercial companies, shell companies and closed-ended investment funds as a condition of listing. The FCA has also published PMB 50 today, which focuses on the sponsor regime and includes two new draft technical notes to assist sponsors in their role going forward. PMB 48 also addressed proposed changes to the FCA's Knowledge Base from a sponsor perspective. We will be publishing a separate briefing on this topic.

Other capital markets reforms

In terms of other UK capital markets reforms, following the publication of the Public Offers and Admissions to Trading Regulations in January, which represent the first part of the reframing of the prospectus regime, the FCA is expected to move to a formal consultation process in respect of its rules in this area later this summer. On this basis, the wholesale update of UK capital markets is anticipated to be complete during the course of 2025.