Opposition To FCA Changing Listing Rules

Shanny Basar

The Financial Conduct Authority (FCA) has today finalised rules creating a new category within its premium listing regime to cater for companies controlled by a shareholder that is a sovereign country.

In July last year, the FCA consulted on proposals aimed at encouraging such companies to choose the higher standards of premium listing, rather than standard listing.The FCA thinks there is considerable benefit to investors if corporate issuers agree to meet these additional premium requirements.

In light of feedback received to the consultation, the FCA agrees with certain points made and is taking forward the proposals with refinements to ensure the regulatory requirements are suitably tailored to achieve the best outcomes for investors and issuers alike. The FCA is therefore including requirements in the category in the following areas.

  • Independent votes on independent directors. This requires the election of independent directors to be subject to separate approval by independent shareholders. As for all other Premium listed companies, where independent shareholders do not vote in favour of the election, the requirement for a 90-day cooling off period after which the election can proceed without the separate vote of independent shareholders will apply.
  • Disclosure obligations on related party transactions beyond Market Abuse Regime disclosures. In effect this would mean timely disclosures on transactions between the sovereign and the issuer.

Two remaining key modifications to the requirements for companies in this category in the final rules are:

  • The absence of an advance sponsor ‘fair and reasonable’ opinion and prior shareholder approval requirements for related party transactions with the sovereign before these transactions are completed.
  • For some sovereign controlled companies, the number of transactions makes this a disproportionately onerous requirement. The requirement for disclosure of the transaction on agreement will remain.
  • The exemption for the sovereign from the requirement to enter into a controlling shareholder agreement with the issuer.
  • Past experience has shown that these agreements can be impracticable for sovereigns and disclosures in the prospectus and the wider information available regarding the relationship between the sovereign and the company support investor understanding of the relationship.

As in the FCA’s original consultation, other features of the premium listing regime apply as usual.  These include the need to demonstrate that a company is carrying on an independent business, the requirement to disclose information regarding the issuer’s compliance with the Financial Reporting Council’s Corporate Governance Code, proportionate voting rights and adherence to the principles of pre-emption rights.

Andrew Bailey, FCA Chief Executive, said:

‘These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing. This raises standards. This package recognises that the previous regime did not always work for these companies or their investors. These rules encourage more companies to adopt the UK’s high governance standards.’

The creation of a new category within the premium listing regime recognises that the relationship between a sovereign controlled company and the state that owns it is likely to be different from the relationship a company would have with a private controlling shareholder. In addition, more information is available on sovereign states than on any other type of controlling shareholder.

While there may be relatively few listed commercial companies with sovereign controlling shareholders, the listing regime should have appropriate ways of accommodating such companies, for example companies on the path to privatisation.

The new category will be effective 1 July 2018.

Source: FCA

The UK Institute of Directors said:

Stephen Martin, Director General of the Institute of Directors, said: “The FCA fails to provide a convincing justification for why listing rules relating to premium category issuers should be waived or removed in cases where the issuer has a controlling sovereign shareholder. If anything, we believe that listing rules should be strengthened for this category of issuer given its distinctive governance challenges and risks.”

The Investment Association, the trade body for UK fund managers said:

Chris Cummings, Chief Executive of The Investment Association said: “We continue to oppose the inclusion of companies in this new segment in all major equity indices as this would force UK savers to invest in these companies despite the loss of valuable and hard won investor protections. We expect the FCA to review this new segment after two years and evaluate whether there have been any unintended consequences, including adverse impacts on investors or market standards.”

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