This edition covers upcoming reforms to the UK listing regime, the FCA’s Primary Market Bulletin 44, the launch of a review into the UK investment research landscape, the PLSA’s 2023 Stewardship and Voting Guidelines, and updated government-backed reports on ethnic and gender diversity within the FTSE 350.

Major Reforms to the UK Listing Regime

On 29 March 2023, the chief executive of the FCA delivered a speech at the Global Investment Management Summit on the topic “Reforming our capital markets ecosystem”.

As part of his speech, he announced that the FCA will soon publish a blueprint for further reform of the UK listing regime in which the current standard and premium listing segments for shares in commercial companies would be replaced with a single listing category with a single set of requirements.

Specific changes would include: 

• the removal of eligibility rules requiring a three-year financial track record as a condition for listing;
• a more permissive approach to dual class share structures; and
• the removal of compulsory shareholder votes for large transactions and for related party transactions, whilst maintaining a disclosure regime.

The FCA intends to retain:

• a streamlined sponsor regime;
• a single set of Listing Principles; and 
• rules to protect shareholders from the solvent cancellation of a listing without takeover offer or approval by a super majority of investors.

Further details from the FCA are expected soon (with a Consultation Paper to be published in Q2 2023) although for now the timing of the draft rules and their implementation are to be confirmed.

Reminders and Warnings From the FCA to Listed Companies

On 20 March 2023, the FCA published Primary Market Bulletin 44 which includes: (a) guidance on the new requirements on listed companies to disclose the diversity of their boards and executive management in their annual reports (for further details, please see this Latham blog post); and (b) warnings regarding a new practice in the market in which some Primary Information Providers (also referred to as Regulatory Information Services) are offering the ability for listed companies to include multimedia content, such as audio and video content, in regulatory announcements:

• FCA reminder: Getting ready for the new D&I disclosures — The first annual financial reports including diversity and inclusion (D&I) disclosures will be published from April 2023. The FCA reminder sets out steps that listed companies should consider when preparing their disclosures. Of particular interest to companies with management based overseas (which may be subject to legal restrictions preventing the collection of diversity data), the FCA provides guidance on what a company should do if it appears that it may not meet the targets or have the relevant data:
  • the company must ensure it can provide clear and meaningful explanations (which could include possible action plans); and
  • the company may wish to review the effectiveness of its existing board succession and recruitment plans.

The FCA also described its supervisory approach to monitoring D&I disclosure compliance. If a listed company includes disclosures that do not meet the requirements, fails to include the disclosures, or fails to provide a clear explanation as required, the FCA will request that the company take corrective action, such as enhancing their disclosures in subsequent annual financial reports, or publishing the missing information via a RIS as soon as possible. This request would be in addition to potential sanctions and/or enforcement actions. The FCA indicates that it will view any non-compliance as a serious matter.

• FCA reminder: Regulatory news announcements with multimedia content — The FCA flags that including multimedia content in regulatory news announcements may confuse market users. 
  The FCA emphasises that the Disclosure Guidance and Transparency Rules and the UK Market Abuse Regulation require companies not to combine the disclosure of inside information with the marketing of their activities, and must ensure that regulated information is communicated to the media in unedited full text. Consequently, the FCA stresses that multimedia content should not form part of any regulated information submitted for dissemination.

HM Treasury Launches Review Into UK Investment Research

On 9 March 2023, HM Treasury published the terms of reference for a new independent review into the UK’s investment research landscape for listed companies. This review forms part of the government’s Edinburgh Reforms package and will run until June 2023.

The government is concerned that the EU-derived MiFID research unbundling rules have in recent years resulted in a decline in the quality and quantity of UK research and analyst coverage of listed companies; thereby impacting the pools of investor liquidity available. The review will seek evidence on whether these rules have contributed to such decline and also provide recommendations on how to improve the research landscape to make London a more attractive location for companies looking to list and access capital.

Updated PLSA Guidelines Shine Spotlight on Executive Pay and ESG

On 30 March 2023, the Pensions and Lifetime Savings Association (PLSA) published the 2023 update to its annual Stewardship and Voting Guidelines. Many listed companies use these guidelines as a benchmark for their corporate reporting and engagement and to gain insight into pension scheme investors’ perspectives.

Three themes emerge as having particular relevance for 2023:

• Cost of living crisis and executive pay — The cost-of-living crisis, high inflation, and energy price hikes have drawn particular attention to executive pay in 2023. The guidelines recommend that remuneration structures for executives should cascade down to all employees in order to allow employees to share in the success of the business. They also encourage shareholders to vote against remuneration policies which do not match up to the standards in the guidelines.
• Climate change and environment — The PLSA expects that companies reference the Task Force on Climate-related Financial Disclosures (TCFD) framework in their reports, in order to enable investors to fully assess the extent of their climate risk. It also expects to see evidence of credible transition plans, given the likelihood that this will soon be a mandatory requirement.

The PLSA specifically recommends investors consider voting against companies’ annual report and accounts where “operations are highly carbon intensive and there has been no disclosure of the climate-related assumptions which underlie their financial calculations, or where those assumptions are not consistent with the Paris Agreement”, and also warns investors not to ignore non-climate sustainability issues (such as waste, deforestation, water usage, and biodiversity).

• Workforce issues and impact of operations on society — The PLSA supports continued progress on workforce disclosures, with investors engaging with companies on mental health, improvements in D&I policies, and the eradication of modern slavery from supply chains. 

Parker Review Announces New Targets to Improve Ethnic Diversity of FTSE 350 Senior Management Teams

On 13 March 2022, the Parker Review published its updated report which announces the 2022 results of its voluntary census and sets out new targets for 2027. The 2022 results show that almost all of the FTSE 100 (and 67% of the FTSE 250 respondents) have met the target of having at least one minority ethnic director.

As a result, the Review has set a new objective for FTSE 350 companies which is to ask them to set by December 2023 their own percentage target, for senior management positions that will be occupied by ethnic minority executives in December 2027. For these purposes, senior management comprises members of the executive committee (or equivalent) and those senior managers who report directly to them.

FTSE 350 Hits Boardroom Gender Balance Target Three Years Early

On 28 February 2023, the FTSE Women Leaders Review published its latest report which showed that FTSE 350 companies have hit the 40% target for women’s representation on boards three years ahead of the 2025 deadline, with 40.2% of FTSE 350 board positions now held by women.

Women now also hold a third of all leadership roles in FTSE 350 companies. The Review states that the next critical goal is to achieve a target of 40% women in FTSE 350 leadership teams (i.e., the two layers of senior management below board level) before 2025 — which UK businesses are on track to meet.