The FCA’s proposed reforms to the UK’s listing regime, published last week, could help spur the biotech and technology sectors, a senior City lawyer has told City A.M.
In the plans, the FCA has outlined how it plans to make the rules companies must follow in order to be allowed to list their shares in the UK, “more effective, easier to understand and more competitive.”
The reforms come amid much speculation that the Government is seeking to overhaul financial services regulation post-Brexit, with a Financial Services Bill included in the recent Queen’s Speech.
One of the key proposed changes means that companies seeking to list on the UK’s public market would no longer have to choose between two different segments with different branding and standards.
Under the proposed changes, all listed companies would only need to meet one set of criteria and could then choose to opt into a further set of obligations, should they wish.
The FCA has stated this further set of obligations would be focussed on enhancing shareholder engagement and would be overseen by the regulator.
The changes follow the amendments that the FCA made to the listing regime last year, including lowering free float levels, allowing certain forms of dual class share structures and introducing digital financial reporting.
“I think these changes will be welcomed by both companies looking to list on public markets and investors too”, said Delphine Currie, partner at international law firm Reed Smith.
Some will argue that the FCA has ‘sold-out’ by seeking to get rid of the premium segment – the ‘super-equivalent’ standard introduced in 2010 to ensure compliance with the EU’s Consolidated Admissions and Reporting Directive and the Transparency Directive, which set a minimum standard for all EU listed companies.
“However, the standard listing segment has never been popular and has failed to attract the number of listings that was anticipated in 2010,” Currie shared with City A.M.
Data published by the FCA says as much.
As at the end of Q1 2022, of the 14,000 securities listed in the standard segment, over 10,000 were debt securities and of the equity listings, the majority were secondary listings or listings of non-standard securities.
There were only 30 commercial companies that had their ordinary shares listed in the segment, with the majority of companies preferring the “gold-plated” standards of the premium segment.
More flexible regime
Currie stressed that companies seeking to list are also likely to “welcome the more flexible regime with a move towards enhanced disclosure as opposed to inflexible eligibility criteria”.
The reforms are aimed at boosting the prospects of early-stage, high growth companies selecting London as the destination to list on public markets.
She argued that whilst the modifications are likely to achieve that, they also contain additional protections which are likely to satisfy investors.
“The FCA suggests changes to the requirement for a three-year revenue earning track record, which will benefit biotech and other early stage scientific-based companies who haven’t previously been able to satisfy the stringent requirements of a premium listing,” Curry continued.
“Other proposed changes relating to the current requirement for historic financial information covering at least 75 per cent of a company’s business over a three-year period will benefit acquisitive companies for whom this requirement has been challenging.”
Whilst some commentators have criticised the FCA, and other key regulators, for not going far enough and implementing reforms to boost the competitiveness of the UK market post-Brexit, Currie stressed that this criticism is unfair.
“The fact that 2021 was the most successful year in terms of funds raised on IPO since 2007 – totalling £16.9bn – suggests that the FCA is doing something right. This latest set of proposals is likely to attract more companies to London whilst still providing adequate protection for investors,” she concluded.