FCA publishes detailed proposals for UK listing regime overhaul

The Financial Conduct Authority (FCA) has published consultation paper CP23/31 outlining its detailed proposals to simplify and inject greater flexibility into the UK listing framework. The aim of the proposals is to increase the accessibility, effectiveness and competitiveness of the UK capital markets, by shifting towards a more disclosure focused regime and away from a prescriptive ruled-based approach.  

CP23/31 builds on the FCA's prior consultation paper CP23/10, which was published in May 2023 (please see our briefing on CP23/10 here). 

Key updates

The latest consultation paper provides further detail and updates on the proposed reforms, including:

New listing categories

• A single listing category for equity shares in commercial companies (ESCC) will be established, while separate listing categories for other types of securities, and shares in investment vehicles (including closed-ended investment funds), will remain in place.

• A separate transitional listing category will be established for existing standard listed issuers that require time to adapt to the new ESCC requirements. This category will retain the current standard listing requirements in the short term.

• A separate listing category for non-UK incorporated companies with a "primary" listing on a non-UK market will be established, the requirements of which will replicate those of the existing standard listing segment.

• The FCA is expected to publish a further consultation paper towards the end of Q1 2024 containing the draft rules for other listing categories.

Removal of eligibility requirements

Certain eligibility requirements will be removed, including the requirements for a three-year representative financial track record and the production of three years of audited accounts covering at least 75% of the issuer's business, and the requirement to produce an unqualified working capital statement.

Significant transactions

• Class 1 transactions will no longer require shareholder approval or circulars, but enhanced disclosure relating to such transactions will need to be produced.

• The concept of Class 2 transactions will cease to exist.

Related party transactions

• Related party transactions will no longer require shareholder approval or circulars, but market announcement and board approval will be required (with conflicted directors being excluded from board decisions).

• Related party transactions will require a fair and reasonable opinion from a sponsor. However, when a commercial company proposes to enter into a transaction that may be a related party transaction it will not be required to seek sponsor guidance to determine the issue.

• The threshold at which a substantial shareholder becomes a related party may increase from 10% to 20%.

Corporate governance

• Issuers listed on the ESCC must either explain how the principles of the UK Corporate Governance Code have been applied and whether all such principles have been complied with (or an explanation as to which provisions have not been complied with and why).

• TCFD and diversity disclosure requirements will continue to apply, with the FCA intending to consult on implementing broad ISSB sustainability reporting in 2024 (please see our prior briefing on the ISSB standards here).

Sponsors

• The sponsor regime will continue to apply to ESCC issuers (and issuers in the process of transitioning to the ESCC), but the sponsor role will be more focused on transactions requiring the production of a prospectus, related party fair and reasonable opinions and reverse takeovers.

• The sponsor role will continue to be applicable on IPOs, although will be required to mirror the revised eligibility requirements.

Dual class share structures

The proposals set out in CP23/10 relating to dual class share structures have been relaxed further, as follows:

• weighted voting will be capable of being exercised on a wide range of matters, but certain matters will be excluded such as issuing shares at a discount of more than 10%, the cancellation of a listing, election of iNEDs and the approval of share schemes

• mandatory sunset provisions will no longer be required

• weighted voting shares may be held by a wider scope of persons, including directors, employees and natural persons who are shareholders.

Controlling shareholders

The existing controlling shareholder regime for premium listed companies will remain largely unchanged, including the requirement for a written relationship agreement between an issuer and any controlling shareholder.

Next steps

The FCA is keen to hear feedback from all sides of the market on CP23/31 before it moves to make a decision on the final rules. This consultation will run until 22 March 2024. Proposals relating to the sponsor competence requirements may be implemented prior to the wider reforms outlined above, and the consultation on the sponsor competency proposals will run until 16 February 2024. 

It is expected that the final rules will be published in the second half of 2024, with a short period of two weeks between publication and implementation. 

If you have any questions, or would like to discuss any of the above, please get in touch with your usual Taylor Wessing contact.