FCA reaches another key milestone in implementing substantive changes to the UK Listing Regime

The approach set out in the original consultation CP23/10 has been broadly maintained and with the key proposed changes to the UK Listing Regime comprising the following:

• Removal of the distinction between “Premium” and “Standard” segment companies and the creation of a new merged segment for “commercial companies” with streamlined eligibility and ongoing requirements, aimed at encouraging a greater range of companies to list in the UK and to compete on the global stage.
• Removal of the requirement for shareholder approval to be given in respect of significant/Class 1 transactions and related party transactions.
• Move over to a disclosure-based regime and with sufficient information to be placed in the hands of investors, so they can influence company behaviour and decide how they wish to invest.
• Amendments to be made to the current Sponsor Regime.
• Creation of a new UK Listing Rules sourcebook (UKLR).

Following the receipt of comments on the proposals, the changes are expected to be implemented and with the new UKLR published at the beginning of the second half of 2024. The FCA has indicated that it will publish a Policy Statement on the final proposals and with the UKLR published and implemented within a very short time period thereafter (i.e. within 2 weeks).

The key proposals are set out in further detail below.

New Listing Categories

The FCA has maintained its central reform of the UK Listing Regime with the proposed merger of the Premium and Standard Segments of the Main Market of the London Stock Exchange which will be called “Commercial Companies (Equity Shares)”. The categories under the new regime will comprise:

• Commercial Companies (Equity Shares)
• Transition Companies
• Sovereign Controlled Companies
• Closed-ended Investment Funds
• Open-ended Investment Companies
• Shells and SPACs
• International Secondary Listing and Non-equity and Non-voting Equity.

New Commercial Companies (Equity Shares)

The key features of the new category will comprise:

Eligibility: The FCA proposes to remove the premium listing eligibility requirements relating to a three year financial and revenue earning track record and also a ‘clean’ or unqualified working capital statement. However, prospectuses will still require disclosure of a financial track record up to 3-years and a working capital statement. Commercial Companies will be required to appoint a Sponsor in order to provide declarations similar to existing declarations, including that an issuer has met its prospectus obligations and has a reasonable basis for the working capital statement within it.

Control and Independence: Eligibility and ongoing rules requiring a company to have an independent business and operational control over its main activities will be removed

Controlling Shareholders: Requirement for independence from a controlling shareholder will be retained, via written controlling shareholder agreements and maintaining certain related voting control.

Dual/multiple class share structures (DCSS): Issuers will be permitted to have dual/multiple class share structures at the time of admission. However, enhanced voting rights must only be held by specified persons, while retaining voting restrictions on certain matters, including dilutive transactions, and amy proposed cancellation of listing. The FCA has decided not to adopt the concept of any time-related sunset requirement to restrict the exercise of enhanced voting rights (previously having proposed a 10-year sunset period in the original consultation).

Significant transactions: There will be a move towards a more disclosure based regime and therefore no prior shareholder vote will be required for class 1 (>25% in class tests) transactions, other than reverse takeovers. However, enhanced market notifications will be required at ≥25% setting out details of any break fee arrangements, the effect of the transaction on the listed company together with certain elements of the financial information required for existing class 1 circulars. The profits class test will be removed and also new guidance on what constitutes ‘ordinary course of business’ will be given in the UKLR.

Related Party Transactions: A mandatory shareholder vote (and related FCA-approved shareholder circular) for larger related party transactions will not be required anymore and also there will be a notification requirement, board approval and fair and reasonable opinion from a sponsor for smaller related party transactions (set at >5%).

Share buy-backs, non pre-emptive discounted share issuances and cancellation: Shareholder votes for these corporate events will be retained.

Annual reporting: the current comply or explain disclosure against the UK Corporate Governance Code and reporting on climate (TCFD) and diversity will be maintained.

Transition Companies (i.e. Standard List Companies)

It is envisaged that existing premium listed issuers will be automatically mapped to the new “Commercial Companies” category when the new listing regime goes live. Likewise, applicants that are midway through applying to the Premium Segment when the changes come into effect will be tracked across to the new Commercial Companies category.

However, existing standard listed commercial companies will be mapped to a new “transition” category which would replicate the existing eligibility and continuing obligations for a standard listing, although it will be closed to new entrants when the changes are brough into effect. This category would not have a fixed end date, although the FCA notes that it may (subject to future consultation) seek to remove it in the medium-term as issuer numbers reduce. Issuers mapped to the “transition” category could choose to apply to transfer to the Commercial Companies category, which would require the appointment of a sponsor (although the FCA proposes a targeted eligibility assessment and sponsor role for such transfers).

The FCA outlines how applications to the current Standard Segment which remain “live” at the time that the changes are implemented in the summer of 2024 will be dealt with. These are termed “In-flight” applications and applicants must have completed their listing process within a year of the date of implementation of the new rules, failing which they will lapse. However, provided the applicant is successful then these companies will continue to be admitted to the Transition Companies category (i.e. the old Standard Segment and based on the current eligibility criteria). Thereafter, these companies may then seek to transfer across to the Commercial Companies category, subject to meeting the required criteria.

Mapping would also take place to move other existing standard listed issuers into the shell companies category and international secondary listing category, based on FCA analysis. If the new UKLR are adopted, the FCA will contact issuers in advance of the prospective changes to notify them of the proposed category they will be mapped over to.

SPACs and Shell Companies

The existing regime for Special Purpose Acquisition Companies (SPACs) and Shells Companies is largely carried forward, although a new concept of an “initial transaction” will replace the application of the reverse takeover regime (which will be wide in scope covering minority stakes, joint ventures and debt transactions). This new concept will involve certain supplementary requirements, based on the existing conditions that enable large SPACs to avoid suspension if they have implemented certain investor protections (e.g. shareholder vote required for an issuer’s first transaction).

For all other reverse takeovers, therefore, a class 1-style announcement will continue to be required along with the publication of a shareholder circular (having the same content requirements as for a reverse takeover). This will also require a shareholder vote, the appointment of a Sponsor and an application for re-admission to an appropriate listing category.

The proposals include arrangements for a transition category of issuers, designed to maintain the status quo for commercial companies that have an existing standard listing of equity shares which is a primary listing (i.e. not a shell company or secondary listed issuer), in order to allow those companies to adapt and move to the commercial category at a time when they are ready to do so.

International Secondary Listings

This category is designed for non-UK incorporated companies with more than one listing where their ‘primary’ listing is on a non-UK market. This category replicates the current standard listing rules with targeted ongoing/ continuing provisions tailored to ‘secondary’ listing.

Companies will be able to apply their home listing corporate governance code, and will not need to adopt the UK Corporate Governance Code and they won’t be subject to the new rules on substantial and related party transactions.

Changes to Sponsor Regime

The Sponsor Regime will change and coverage extended to support Commercial Companies, SPACs and other shell companies, Transitioning Companies that are moving to another category, Closed-ended Investment Funds at application stage and on Reverse Takeovers.

The ongoing role of the Sponsor will be reserved to further issuance listing applications requiring a prospectus, fair and reasonable opinions for related party transactions, or where issuers seek guidance, modifications or waivers to FCA rules (including on class tests).

There are also proposals to allow for a wider range of factors for Sponsors to be able to demonstrate their competency and extend the lookback for relevant experience from 3 to 5-years (subject to shorter comment period).

Proposed UK Listing Rules Sourcebook

The current Listing Rules which apply to companies whose securities are listed on the Main Market will be replaced with an entirely new sourcebook which are to be called the UK Listing Rules Sourcebook (UKLR).  These FCA has indicated that these rules will be published within a very shorty time frame of the Policy Statement being made and with a view to the new UKLR being in force by early summer 2024.

Next steps

The consultation period on the new proposals will run until 22 March 2024 (but with the proposed changes to the Sponsor Regime closing earlier on 16 February 2024). The FCA intends to publish the final UK Listing Regime proposals at the beginning of H1 2024, with the new Listing Rules coming into force around a couple of weeks thereafter.

How we can help

Our team has a wealth of experience in the capital markets sector. Should you have any questions, please contact Partners in our Equity Capital Markets team Nick Davis, Lesley Gregory, Nick Heap or Robert-Bines Black.

Our view

As we outlined previously, we welcome changes to the rules that help to simplify the listing regime, allowing directors to focus on the running of their listed businesses while providing shareholders with a clearer and more accessible market. Given the recent press coverage on the number of companies that have sought to list abroad, it is good that the timeline given by the FCA for implementing these changes is clear and relatively short.

Disclaimer: We at Memery Crystal (and our parent company RBG Holdings plc) support and encourage free/independent thinking in relation to issues which are sometimes considered to be controversial subject matters. However, the views and opinions of the authors do not necessarily reflect the opinions, views, practices and policies of either Memery Crystal or RBG Holdings plc.