The Financial Conduct Authority (FCA) has confirmed that it is to relax some of its listing rules, marking the biggest overhaul to UK listing rules in over three decades. The move, which aims to attract more companies to list in the UK, comes after years of lacklustre growth on UK markets. 

The London Stock Exchange has fallen out of favour in recent years, with many companies, including British ones, choosing to list elsewhere. According to the UK Listing Review, the number of listed companies in the UK has fallen by about 40% from a peak in 2008. Between 2015 and 2020, the UK accounted for only 5% of initial public offerings (IPOs) globally. 

The newly appointed Chancellor of the Exchequer Rachel Reeves says: “These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

The new regime aims to support a wider range of companies to issue their shares on a UK exchange, increasing opportunities for investors. The new rules, which apply from 29 July 2024, will involve allowing greater risk, but the FCA says it believes the changes “will better reflect the risk appetite the economy needs to achieve growth”. 

David Petrie, Head of Corporate Finance, ICAEW says: “There will also be some confusion, in that some parts of the process now become optional and some market participants may still require the provision of that information. The policy objective of making it easier to list and arguably ‘less burdensome’ for companies to stay listed may prove elusive.”

The UK’s financial watchdog says the overhaul of listing rules “better aligns the UK’s regime with international market standards”. The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events such as reverse takeovers and decisions to take the company’s shares off an exchange is still required. 

Sarah Pritchard, Executive Director, Markets and International at the FCA, says the watchdog was acting now “to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own”. 

Adam Zoucha, Senior Vice President at accounting automation company FloQast, says: “This is the most radical shake-up of listing requirements in 30 years. It is the UK ‘rolling out the red carpet’ for big-ticket IPOs by cutting red tape and simplifying compliance.”

Zoucha says reducing levels of mandatory reporting “will not and should not lift the burden of due diligence and reporting. Instead, it’s likely to increase investors’ appetite for a continuous cycle of transparency, and put the onus on pre-IPO and listed companies to demonstrate good communication and fiscal discipline to shareholders.”

The FCA has previously acknowledged that relaxing the rules would include less scrutiny of corporate transactions such as mergers and acquisitions. It has also warned that attracting a more varied range of companies to list on the London Stock Exchange would open the door to higher-risk businesses. 

Petrie says: “While the rule changes will certainly change the process of listing, for example, for listed companies making sizeable acquisitions, on the other side of the equation the changes do, inevitably, increase risk for investors.

“The Holy Grail here is to reverse the trend in de-equitisation by UK pension funds and other institutional investors. Go back 10 or 15 years and more than 70% of UK pension fund money was invested in UK listed companies. Now it’s probably less than 30%. Measures that may make it ‘easier’ to list, or be listed, increase investment risk and are extremely unlikely, in themselves, to reverse that trend,” Petrie says.

In June, FCA chief executive Nikhil Rathi told the annual Investment Association conference, whose members manage £8.8trn of assets in the UK, that it was important to accept “that with risk comes great opportunity, but also potential for failure”, the FT reported.

Zoucha says: “Companies may welcome a more streamlined process, but vigilance is essential to mitigate risk post-IPO. Robust financial processes that closely analyse, monitor and report on the financial health of a company will be the order of the day.”

Petrie says: “The Hill Review, which has led to all these changes to the rules, didn’t effectively tackle ‘the elephant in the room’ – the regulation and culture of UK pension fund investing. Many of the measures put in place after the notorious collapse of Maxwell Communication Corp plc in 1991, while undoubtedly well-intentioned, brought with them a systemic shift out of equity investment in London-listed companies. 

“This has resulted in poor returns for millions of UK pensioners, as their funds are no longer predominantly invested in an asset class, which in the long term delivers significantly better returns than just about anything else – that is, if the London market continues to function properly. But continued de-equitisation makes even that less likely, and the downward spiral continues.”