Update 12 July 2024: This post has been updated to confirm that, despite stakeholders publicly voicing their concerns regarding the proposed rules, the FCA has approved the Rules, which will apply from 29 July 2024. We have also included Glass Lewis’ March 2024 response to the consultation. 

Original post: In December 2023, the Financial Conduct Authority (FCA) published a new Consultation Document that proposes significant changes to the UK listing regime. The proposals follow extensive public feedback on an initial Consultation Document intended to improve the framework for UK listing commercial companies’ equity.

The three material proposals include:

  • Replacing the current standard and premium segments of the Official List with a single listing category;
  • Taking a more permissive approach to dual-class share structures; and
  • Removal of compulsory shareholder votes on certain transactions (those that represent 25%+ on any class test).

The FCA opined that the proposals were intended to create a “simpler, more disclosure-based listing regime […] aimed at helping boost UK growth and competitiveness” which forms part of a broader discussion on the current attractiveness of the UK market, following some companies choosing to delist from the London Stock Exchange and a decrease in IPOs. However, the proposed changes have experienced a mixed reception, with the International Corporate Governance Network (ICGN) notably expressing concern that the proposals may undermine the UK’s economic growth and attractiveness as a financial centre.

Glass Lewis’ views are broadly aligned with those of the ICGN. We believe the UK corporate governance standards are often cited as “best in class” and are seen to set the tone globally; undoubtedly these standards are a considerable contributor to the UK market’s reputation. Regarding the proposed approach to dual-class shares, Glass Lewis generally believes that allowing one vote per share operates as a safeguard for common shareholders by ensuring that those who hold a significant minority of shares are able to weigh in on issues set forth by the board. These concerns are typically heightened in the absence of a mandated time-based sunset clause. Further, the removal of compulsory shareholder votes on certain transactions may represent a weakening of an important shareholder protection.

While the proposed changes to the listing regime are intended to improve the attractiveness of London as a listing location, and the FCA acknowledges that the Listing Rules are unlikely to be the sole or primary determinant in decisions on where to list, there may rightfully be concerns that the negative impact on shareholder protections may reduce the attractiveness of UK listed companies to investors.

The FCA is working on an accelerated reform timetable and expects the new regime to be implemented early in the second half of 2024. The current consultation will close on March 22, 2024, and Glass Lewis intends to submit a response in due course.