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Regulators have approved the biggest overhaul of the rules for London-listed companies in three decades as the UK tries to revive its capital markets, which have been battered by international competition and investment outflows.
The new listing rules will give company bosses more power to make decisions without shareholder votes and give companies more flexibility to adopt dual-class share structures, which are used by founders and venture capital firms to gain stronger voting rights than other investors.
The Financial Conduct Authority announced the changes on Thursday, days after a Labor government was elected, confirming a Financial Times report last month.
The new regime will come into force on 29 July following two FCA public consultations from May 2023. The regulator has repeatedly warned that the new rules will lead to a higher risk of investors losing money, but said they will “better take into account the risk appetite that the economy needs to achieving growth’.
London has struggled to compete with New York for listings of fast-growing start-ups, while major groups such as bookmaker Flutter and building materials group CRH have moved their primary offerings to the US.
“The financial services sector is central to the UK economy and the heart of this government [economic] growth mission,” Rachel Reeves, Britain’s new chancellor, said on Thursday.
“These new rules are an important first step in revitalizing our capital markets, putting the UK on par with international peers and ensuring we attract the most innovative companies to list here,” she said.
The shake-up is part of wider reforms launched by the previous Conservative government, which the Labor administration is expected to continue.
They include the so-called Edinburgh and Mansion House reforms, which aim to increase investment in UK assets by domestic pension funds and instil a culture of greater risk-taking.
More changes are on the horizon as the FCA plans to launch a review of UK prospectus rules this summer.
The listing rule changes announced on Thursday are more drastic than previously proposed by the FCA in December, as they will allow institutional investors to hold super voting rights within dual share classes.
The FCA has previously said it intends to only allow natural persons such as founders and directors to have special voting rights.
The change will mean investment groups such as private equity firms and venture capitalists will be able to hold more voting rights than other shareholders for up to 10 years.
The 10-year limit would not apply to sovereign wealth funds if they are controlling shareholders, a rule that could make it easier for some Middle Eastern-owned companies in particular to list in the UK.
In a document published on Thursday, the FCA acknowledged that investors were “overwhelmingly opposed” to its plan to allow greater freedom to use dual-class structures and were “largely opposed” to its proposals.
The FCA said companies and their advisers were mostly supportive of increased flexibility in the use of dual class shares. He added that investors will have the option not to invest in any structure that does not suit them.
Proponents of the proposals argued that investors already support overseas companies with dual-class shares, including US technology groups.
The new rules will eliminate requirements for shareholders to approve related-party transactions or certain other large deals. It will still need votes for a company to delist, do a “reverse takeover” of a larger business, or if a company receives a takeover bid.
The new rules will also simplify the existing regime by merging the premium and standard segments into one category. Existing companies will be able to use transitional measures.
FCA chief Nikhil Rathi justified the changes, saying “we don’t believe the status quo is an alternative” and that refusing to overhaul the rules would risk the UK regime “continuing to lag behind regimes in other jurisdictions, making it less likely”. that growth-hungry companies are choosing the UK as a place to list their shares’.