The FCA have started the final step towards their reform of the UK Listing Rules, which started with Lord Hill’s UK Listing Review in 2020, with the release of the consultation paper CP23/31 on 20 December 2023. The consultation paper largely reflects the previously released consultation paper CP23/10 published in May 2023 and provides details of the draft rules for the new UK listing regime. The proposals are aimed at making the UK’s listing regime more accessible, effective, and competitive and would replace the current premium and standard categories with a simpler, more disclosure-based regime including reduced eligibility criteria for companies seeking to IPO.
The consultation is to run until 22 March 2024 (save for a shorter comment period on the sponsor competency proposals which closes on 16 February 2024, with those changes implemented by mid-Q2 2024).
Publication of the final rules for the new listing regime is expected at the start of the second half of 2024. With a two-week implementation period before the new regime comes into force together with transitional provisions to help smooth the transition onto the new rules for those companies either seeking or already listed both on the standard and premium segments of the market.
The key changes to the UK Listing Rules are expected to be the following.
Single Listing Segment
Existing premium and standard listing segments will be merged into a new single listing segment for equity shares in commercial companies. A separate transitional segment to give existing standard listed companies time to adapt to the single segment, will retain the existing standard listing requirements. This segment will be closed to new entrants and those issuers are expected to transfer to the new single segment over time.
The new structure of the UK Listing Rules would also provide for an international secondary listings regime whereby a non-UK incorporated company with a “primary” listing on a non-UK market could list on a separate segment that would replicate the existing standard segment.
The FCA is expected to publish a further consultation paper later in the first quarter of 2024 containing the detailed draft rules for the other listing categories (including the transitional segment, international secondary listings, closed-ended investment funds, OEICs, SPACs, and other non-equity categories) and certain provisions affecting all issuers.
IPO Eligibility Criteria
Some key barriers to listing (including the current premium segment requirements for a 3-year financial and revenue-earning track record and a “clean” working capital statement) will be removed.
Class 1 transactions (i.e. transactions meeting the 25% threshold on the class tests) will only trigger a requirement on the company to release a transaction notification (but not the requirement to include a working capital statement or re-stated historical financial information), rather than a compulsory shareholder vote or FCA-approved shareholder circular.
At the point the new regime comes into force in the second half of 2024, formerly premium-listed companies that would be partly through a transaction that has not yet completed would no longer be required to comply with the premium listing obligations that have not been carried over to the new regime. For example, a premium-listed company that has announced, but not yet closed, a significant by the implementation date would no longer need to publish a FCA-approved shareholder circular or proceed with a shareholder vote.a) Companies facing financial difficulty
For significant transactions undertaken by a company facing financial difficulty, including a reconstruction or refinancing, the FCA proposes to apply the significant transactions regime with additional, enhanced disclosure requirements for the notification where it meets the specified size threshold. FCA does not propose to carry forward an obligation to disclose a ‘working capital statement’ or the FCA vetting and approval processes with respect to a reconstruction and refinancing circular. b) Reverse takeovers
The FCA proposes that rules for the commercial companies category carry over the premium listing approach to reverse takeovers, i.e. a company must make a notification via a RIS, send an explanatory circular to shareholders and obtain shareholder approval in general meeting.
Larger related-party transactions (i.e. related party transactions with a percentage ratio of 5% or more on the class tests, excluding transactions in the ordinary course of business) would no longer require compulsory shareholder votes or FCA-approved shareholder circulars. Instead, such transactions will require a transaction announcement and a fair and reasonable opinion from a sponsor.
Controlling Shareholder Regime
Existing premium listing eligibility criteria and continuing obligations in relation to independence and controlling shareholders would largely be unchanged under the single listing segment. In particular, the requirement to implement a written and legally binding relationship agreement to ensure independence from a controlling shareholder will be retained.
Dual(or Multiple) Class Share Structures
These will be subject to fewer regulatory restrictions under the single listing segment, with the FCA letting the market decide on what is acceptable. Crucially, the weighted voting could be exercised on a wider range of matters (excluding dilutive transactions and cancellation of listing), there would be no time-based sunset requirements, and the weighted voting shares could be held by directors, employees, and natural persons who are investors in, or shareholders of, the IPO candidate.
The sponsor regime will be applied to the proposed commercial companies category, closed-ended investment funds category and shell companies category. The regime would be retained at the point of IPO and reverse takeovers, but materially reduced once companies are listed, with fewer instances post-IPO in which a listed company would need to consult a sponsor (in particular, given the reduced compliance burden for significant transactions). As a result of the reduction in the number of transactions requiring the appointment of a sponsor, the FCA is consulting on modifications to the sponsor competency requirements.
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