Major UK Listing Reforms Cut Red Tape for Listed Companies

The FCA’s radical overhaul of the UK’s listing framework came into effect on 29 July 2024. All premium listed commercial companies have automatically been mapped to a new listing category for equity shares (commercial companies) (ESCC) which replaces the previous premium and standard listing segments for commercial companies.

Key points for listed companies mapped to the ESCC:

• Transactions — the regulation of material transactions entered into by ESCC companies is now disclosure-orientated. No shareholder approval or circulars are required for significant transactions or related party transactions (other than for reverse takeovers). In comparison with the previous premium listing regime, ESCC companies will have more deal certainty and lower transaction costs when undertaking M&A.
• Controlling shareholder regime — although ESCC companies must still ensure their independence from controlling shareholders, written relationship agreements are no longer required. As a result, ESCC companies have more flexibility to structure arrangements with their controlling shareholders under the new disclosure-based regime.
• Sponsors — while the sponsor regime still applies to the ESCC, the number of situations where a sponsor needs to be engaged post-IPO has been decreased materially (thereby reducing costs for ESCC companies). Sponsors still need to be engaged by ESCC companies for further issuances involving a prospectus, reverse takeovers, fair and reasonable opinions for related party transactions, when seeking FCA guidance, modifications, or waivers to FCA rules, and when transferring to certain listing categories.

For further details, see this Latham Client Alert.

Proposed Prospectus Reforms to Streamline Capital Raising Processes

On 26 July 2024, the FCA launched its consultation on the new prospectus regime for issuers seeking to admit securities to a UK regulated market or a “primary multilateral trading facility” (such as AIM). The FCA seeks to improve the regulation in this space to reduce costs for issuers, improve access to markets, and improve the quality of information available to investors.

The proposals set out in the consultation would materially reduce transaction costs and timescales for follow-on capital raisings undertaken by listed companies. In line with the Secondary Capital Raising Review, the FCA proposes that the threshold for triggering a prospectus for further issuances of securities already admitted to trading would be increased from 20% (of existing fungible securities) to 75%.

The FCA also proposes a legal framework to provide certainty on what information can be deemed “protected forward looking statements”. Under the new regime, such statements would be subject to a “recklessness” statutory liability threshold to encourage issuers to incorporate forward-looking information into prospectuses.

The deadline for responding to the consultation is 18 October 2024. The FCA aims to finalise the rules for the new prospectus regime by the end of H1 2025. For further details, see this Latham blog post.

FCA Issues Guidance on Sponsor Regime

On 29 July 2024, the FCA published Primary Market Bulletin 50 alongside its finalised Listing Rules. PMB 50 sets out the outcome of the FCA’s prior consultations on how the sponsor requirements would operate under the new listing regime.

Key points:

• Apart from changes to its sponsor competence requirements (which came into effect in April 2024 and were covered in our previous briefing), the role and responsibilities of the sponsor have not materially changed under the new regime. However, the FCA has provided further guidance (together with new draft technical notes set out in the PMB) on certain aspects of the sponsor role, including due diligence, record-keeping, and the FCA’s approach to reviewing sponsors.
• Issuers are reminded that sponsors owe important responsibilities to the FCA, and that the Listing Rules still impose obligations on issuers to cooperate with their sponsor. The FCA intends to clarify this to new issuers at the outset of an IPO.
• These measures sit against the backdrop of the wider listing reforms which materially reduce the situations where a sponsor needs to be engaged post-IPO.

FCA Finalises Changes to Rules on Investment Research

On 26 July 2024, the FCA published its final rules on payment optionality for investment research (PS24/9) following its consultation launched in April 2024.

The finalised rules are largely in line with the proposals from the FCA’s consultation in that, instead of reversing the MiFID II unbundling requirements entirely, they require asset managers wishing to make bundled payments for research and execution charges to comply with certain conditions (referred to as “guardrails”) relating to cost transparency and other investor protection features. However, the FCA has made some adjustments to these guardrails in the final rules.

The changes took effect on 1 August 2024, and it will be interesting to see whether these changes will materially improve research coverage of UK listed companies going forward. For further details, see this Latham blog post.

FRC Issues Update on Its Stewardship Code Review

On 22 July 2024 and following extensive engagement in early 2024, the FRC announced new areas of focus in the ongoing review of its Stewardship Code 2020 (Code).

These areas of focus comprise five themes (purpose, principles, proxy advisors, process, and positioning) which together underline the fundamental nature of the review and the FRC’s desire to support UK capital markets, reduce reporting burdens, and drive better stewardship outcomes. The FRC will be undertaking further engagements for its Code review across summer and early autumn 2024, and will launch a formal consultation later this year.

Ahead of the wider revisions of the Code, the FRC announced immediate changes to reduce the reporting burden of its Code signatories (i.e., comprising asset owners, asset managers, and service providers). Broadly, these changes remove requirements on Code signatories to disclose against certain reporting expectations under the Code, except for material changes or updates. These changes are effective for the next application deadline of 31 October 2024.