Independent review recommends reforms to UK listing rules

The government is considering an overhaul of UK listing rules to make it easier for companies to list in the UK and raise finance on public markets

The UK Listing Review, led by Lord Hill, was launched by Chancellor Rishi Sunak in November last year to further enhance the UK’s position as an international destination for equity listings.

The Review examined how companies raise equity capital on UK public markets and makes a series of recommendations to improve the process, while maintaining high standards of corporate governance, shareholder rights and transparency.

The UK already has some of the world’s most liquid equity markets, with over £43bn raised in 2020.

The Review’s key recommendations include modernising listing rules to allow dual class share structures in the London Stock Exchange’s (LSE) premium listing segment, giving directors (in particular, founders) enhanced voting rights on certain decisions, with safeguards to maintain high corporate governance standards. This would allow company founders to keep control over their companies by giving them deciding votes on major decisions such as mergers and takeovers.

It is also considering reducing free float requirements – the amount of a company’s shares that are in public hands - from 25% to 15% and allowing companies to use other measures to demonstrate liquidity.

Another recommendation is a fundamental review of the prospectus regime so that in future, admission to a regulated market and offers to the public are treated separately - this will ensure it reflects the breadth and maturity of UK capital markets and the evolution in the types of business coming to market.

There is also a push to liberalise the rules regarding special purpose acquisition companies (SPACs), with appropriate safeguards for investors. SPACs are shell companies set up by investors with the sole purpose of raising money through an initial public offering (IPO) with the objective of eventually acquiring another company.

In order to broaden the appeal of listing in London, the LSE’s standard listing segment should be rebranded and repositioned to increase its appeal to companies of all sizes and types, particularly to encourage listings by innovative high tech companies and the biotech sector.

Lord Hill of Oareford, chair of the Listing Review, said: ‘The proposals are designed to encourage investment in UK businesses, support the development of innovative growth sectors such as tech and life sciences, benefit the companies who choose to float in London, simplify and streamline processes, encourage a more dynamic regulatory regime, and improve the UK’s competitive position, ultimately providing more opportunities for millions of investors to share in growth.

‘The recommendations in this report are not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage. They are about closing a gap which has already opened up. All the recommendations are consistent with existing practices in other well-regulated financial centres in the US, Asia and Europe.’

To improve transparency, Lord Hill also recommends the production of an annual report on the state of the City, and its competitive position, which should be delivered to parliament by the Chancellor every year.

Further recommendations include making it easier for companies to provide forward-looking guidance when raising capital; considering how technology can help retail investors participate in stewardship; updating the Financial Conduct Authority’s statutory objectives to include a duty to take into account the UK’s attractiveness as a place to do business; tailoring information to meet investors’ needs better; improving the efficiency of the listing process; and addressing issues in the wider financial ecosystem.

Chancellor Rishi Sunak said: ‘We asked Lord Hill to lead this review because we wanted bold ideas. The UK is one of the best places in the world to start, grow and list a business – and we’re determined to enhance this reputation now we’ve left the EU.

‘That means boosting the UK’s business environment and making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike, while protecting the high standards that underpin our status as a world-leading financial centre.

‘The Review has more than delivered and I’m keen we move quickly to consult on its recommendations.’

The government will now examine the Review’s recommendations closely and set out next steps, including consultations with key stakeholders. Many of the recommendations, including changes to the listings regime, will require consultations by the Financial Conduct Authority.

Sara White |Editor, Accountancy Daily, published by Croner-i

Sara White is editor of Accountancy Daily, published by Croner-i, and in...

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