TheCityUK response to the FCA’s Primary Market Effectiveness Review and listing reform proposals

FCA Primary Market Effectiveness Review

TheCityUK is grateful for the opportunity to respond to the FCA’s consultation on detailed proposals for listing rules reforms, but we are doing so at a high-level to reflect the breadth of our membership. We understand that UK Finance, AFME, the Investment Association (IA) and other trade associations will submit more sector-specific responses to the consultation, as will individual member firms.

Our members are very supportive of the vast majority of the proposals put forward by the FCA in this consultation. However, there remain some fundamental differences of opinion in certain areas. This is due, broadly put, to a split between those members (on the buy-side) who wish to retain certain controls as investors / stewards and those (on the sell-side) who support the FCA proposals to make the listing process more efficient.

• While the majority of CMG members support the FCA’s proposal to remove a shareholder vote for significant transactions for the reasons the FCA outline, some members continue to oppose this removal as a dilution of the controls available to them as fiduciary managers on behalf of end investors.
• For the same reasons, while the majority of CMG members welcome the FCA’s proposal to remove a shareholder vote for related party transactions, some members continue to oppose this removal.
• Finally, while the majority of CMG members urge the FCA to simplify the disclosure-based regime that is designed to replace shareholder voting further (on the grounds that currently proposals for market announcements will still take too much time to organise and publish), some members maintain that the removal of shareholder votes should require more detailed, not less detailed, disclosure.

Otherwise:

• The vast majority of CMG members support the FCA’s more permissive approach to the Dual-Class Share Structure Regime (DCSS). However, again, some members have raised concerns specifically about the potential market impact of DCSS and shareholder vote reforms occurring simultaneously. Given that the new approach to DCSS will apply only to new companies at the IPO gateway, and that only a minority will make us of it, these members acknowledge that this is more a matter of market optics than of technical practicalities.
• The interaction between the ‘controlling shareholder regime’ and the DCSS is continuing to cause confusion. In certain circumstances it is possible for weighted shareholders to have more control over a company than controlling shareholders, because of the lack of a clear definition of control under the DCSS. This is clearly an anomaly in FCA policy, and we urge the FCA to consult industry on the right solution to this as a matter of urgency.

TheCityUK would be happy to facilitate engagement with our members on this latter point, to help develop solutions. The mixed nature of our membership – broadly split between shareholding stewards and share issuers – means that we are very much alive to the areas of sensitivity that the FCA’s listing reform proposals are seeking to navigate.

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