The UK’s financial regulator has warned reforms to stock market listing rules will pass greater risks on to investors in British companies, as it presses ahead with changes designed to reverse a decline in London’s position as a top financial centre.
The Financial Conduct Authority (FCA) on Tuesday night said it plans to abolish the stricter “premium” class of London stock market listing, and make it easier for company founders to keep control of businesses using US-style “golden shares”, among a series of big changes to City regulations.
The changes are part of a push by the Conservative government to arrest the decline of the London stock market since the global financial crisis and lure new companies to list here. There were 2,101 companies listed on London’s main market in 2003, but that number has fallen to 1,097 today, according to London Stock Exchange data. The average number of companies floated has fallen from 177 a year before the financial crisis in 2008 to 66 a year in the period since then, according to the data company Dealogic.
The prime minister, Rishi Sunak, a former City financier, commissioned a 2021 review into the UK listing regime that had proposed many of the new changes. The government in December unveiled a separate plan for sweeping deregulation for banks and insurers.
The FCA chief executive, Nikhil Rathi, who previously led the London Stock Exchange, acknowledged that the aim of helping the UK economy grow would mean higher risks for investors because there will be fewer checks on listed companies, in a foreword to a consultation paper published on Tuesday night.
“Access to a potentially wider range of companies listing will provide greater opportunities for investors in UK markets and help create jobs and growth,” wrote Rathi alongside Sarah Pritchard, the FCA’s executive director of markets. “But we must be upfront that these changes we are proposing to the listing regime will mean passing greater investment risk to investors and greater responsibility on to shareholders to hold the companies they own to account.”
The FCA has put forward proposed changes for formal consultation, with a view to introducing the rules by the end of the year.
They include allowing more dual class share structures – sometimes known as “golden shares” – meaning company founders will be able to keep control of listed companies for 10 years via special voting rights.
The food delivery company Deliveroo only chose London to list its shares in 2021 after dual class shares were first allowed, while Matthew Moulding, the chief executive of the online beauty retailer THG, has hung on to the company’s dual class share structure despite pledging to give it up after investor pressure.
Other changes include removing a requirement for shareholder votes on acquisitions and related party transactions – which had been seen as a barrier to listing by some companies – and the removal of rules requiring startups to earn revenues for three years before listing.
Within the City of London’s financial services industry there is a broad consensus that the UK has been losing out to New York in particular. Sunak personally lobbied for the chip designer Arm to pursue a listing in London before it chose New York, while recent departures from the London Stock Exchange’s FTSE 100 index include the building materials company CRH, and the plumbing and heating equipment supplier Ferguson. Even the oil company Shell considered leaving London.
The London Stock Exchange’s current boss, Julia Hoggett, has been among the most prominent advocates of reform to make listing easier, which could also benefit her business.
However, some senior figures in the financial services industry have criticised aspects of the reforms.
Richard Wilson, chief executive of Interactive Investor, an investment platform, said he strongly supported making the UK more competitive, but added that “eroding shareholder rights risks undermining market standards, and this is not the right answer”.
Wilson particularly criticised dual class share structures, which are favoured by US tech founders, who can raise money while keeping control of their companies.
“One share, one vote is a bedrock of shareholder democracy and we are concerned to see that the spectre of dual share classes, which we have actively lobbied against, still looms large,” Wilson said.
Andrew Griffith, the economic secretary to the Treasury, said the changes were “an important step forward by the FCA in improving the international competitiveness of the UK as a place to list.
“We are the largest financial centre outside the US but we recognise that companies and investors have a choice and it is important our rulebook keeps pace with practices elsewhere while still benefiting from the high-quality reputation of our markets,” he said.
Chris Hayward, policy chair at the City of London Corporation, which lobbies for financial services, said the reforms “will signal the UK is open for business”.
