Capital Markets Of Tomorrow Report Sets Out “UK Elevator Pitch” and Identifies Priority Areas to Deliver UK Economic Growth
On 6 September 2024, the Capital Markets Industry Taskforce (CMIT) published the Capital Markets Of Tomorrow report (CMOT). CMOT sets out the “UK elevator pitch” for the reformed UK capital markets, engages in some judicious myth-busting about the UK markets, identifies where more reform work is needed, and proposes a model which will help to deliver long-term growth for the UK economy.
The report quantifies the scale of the UK’s demand for capital over the next decade and identifies four priority areas to supply this demand:
- Maximising the green opportunity — CMOT recommends that the UK government focuses on interventions that can unlock UK capital for the green economy, such as establishing new investment vehicles to raise institutional funding (particularly from defined contribution pension funds) to the UK’s life sciences and technology sector and implementing regulatory clarifications for the closed-ended funds market.
- Creating UK advantage — encourage greater UK investment in domestic companies through financial education, tax incentives, and removing barriers (such as lowering or removing SDRT on shares).
- Restoring the UK’s risk appetite — CMOT calls for a market that is “risk on” rather than “risk off” — a return of an insurgent and celebrated entrepreneurial mindset to help achieve the UK government’s growth ambitions.
- Restoring the power of UK retail investors — CMOT recommends implementing measures to encourage more retail investment in UK companies, such as through a streamlined ISA product and the FCA continuing its ongoing work to reshape the prospectus regime and the Advice Guidance Boundary Review.
CMIT Calls for a More Effective Model for Stewardship in the UK
On 30 August 2024, CMIT published an open letter on the ongoing review of the UK Stewardship Code (Code). The letter follows widespread discussions with both issuers and investors, both active and passive. The FRC updated certain reporting requirements under the Code in July 2024 and is due to launch a formal public consultation on further changes to the Code later this year, focusing on the five themes of purpose, principles, proxy advisors, process, and positioning.
CMIT’s open letter sets out four core principles that it believes would help drive a more effective model for stewardship in the UK in order to support UK competitiveness and growth:
- The Code should be refocused to clarify the meaning of stewardship in order to alleviate reporting burdens and an overly “box-ticking” approach by investors.
- The Code should foster high-quality engagement between issuers and investors and so drive better outcomes for both.
- Good stewardship should be flexible and demonstrations of systemic stewardship (e.g., decisions to vote if investors may not have strong views or resources to consider the matter properly) should not be required. In particular, the Code should move away from the “apply and explain” to a genuinely “comply or explain” approach to its principles.
- Excessive reporting should not be required under the Code.
Investors Call for Climate Strategy Vote at UK’s Largest Listed Companies
On 11 September 2024, the Local Authority Pension Fund Forum (LAPFF) and CCLA (an investment manager for charities, Church of England organisations, and the public sector) issued a letter to each of the chairs of 76 FTSE 100 companies that have not held a vote on their climate transition plans in the past three years setting out their expectations ahead of next year’s AGM season.
The letter stated the following:
- Investors expect companies to set out credible transition plans that include Paris-aligned targets and detailed strategies for achieving those goals.
- Emerging industry guidance, including from the Transition Plan Taskforce, recommends companies produce or update their climate strategies every three years. In line with these recommendations, they expect companies to provide their investors a vote on their plans at least every three years.
- Around a fifth of FTSE 100 companies (excluding investment trusts) have provided their investors with the opportunity to approve their climate plans, which is now considered good practice.
This comes in the context of the new UK government’s manifesto commitment to require certain companies (including FTSE 100 companies) to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement across their portfolios and the expectation of a consultation in H1 2025 on the UK’s implementation of the International Sustainability Standards Board (ISSB) standards.
FCA Updates Its Knowledge Base to Reflect the New UK Listing Regime
On 23 September 2024, the FCA published Primary Market Bulletin 51 which summarises consequential and minor updates to its technical notes. The FCA had previously consulted on the technical notes in Primary Market Bulletin 48 to reflect final changes to the UK listing regime and feedback received. The changes include updates to technical notes impacting sponsors and a new technical note for sponsors on the confirmation on the modified transfer of listing category. One useful addition is the FCA’s confirmation that it does not wish to introduce a de facto requirement to include a pro forma in significant transaction announcements; rather, the pro forma technical note merely sets out the applicable requirements should the issuer wish to include such information.
The changes focus on the technical notes used most frequently by market participants (e.g., relating to transactions and class tests) and reflect feedback from the FCA’s consultation in Primary Market Bulletin 48 as well as the subsequent publication of the final UK listing rules. The FCA is taking a phased approach and will consult on updating its remaining technical guidance in subsequent bulletins, including on independent business requirements and aggregating transactions.
These updated notes will help issuers and sponsors interpret the new UK listing regime which has been in force since the end of July.
Latham US FPI Guide — 2024 Edition
The 2024 update to The Latham FPI Guide: Accessing the US Capital Markets From Outside the United States is now available. This new edition includes recent legal developments and topics relevant to UK companies with a US listing or considering US capital markets transactions.
UK companies listed in the US (including those dual-listed in the US and UK) should note:
- the removal of certain reporting requirements on share repurchases following the US Court of Appeals for the Fifth Circuit’s decision to vacate the Securities and Exchange Commission’s Share Repurchase Disclosure Modernization Rule;
- updates to the sections on reporting obligations of major shareholders (Schedule 13D or 13G Reports) to reflect new rules; and
- the inclusion of a new section on disclosure requirements for resource extraction issuers.
