Pushing Premium: FCA seeks to relax rules to boost London listings

June 3, 2022

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3 min read

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What's going on here?

The Financial Conduct Authority (FCA) – the UK finance watchdog – has proposed new rules to simplify the process of listing a company on the London Stock Exchange (LSE) in an effort to attract more fast-growing startups.

What does this mean?

The FCA is planning to scrap the current two-tier system for listing on the stock market, where companies must pick between either a “premium” listing with rigorous requirements, or a “standard” listing with less strict rules. Whilst both standard and premium listings are required to have a minimum market value of £700,000, premium listings must meet further requirements. For example, a company must own the majority of its assets for a three-year period in order to qualify as a premium listed company. Buying and owning assets like machinery and buildings can be very expensive which highlights the tougher process of the premium option.

With the FCA’s newly proposed system, all companies will be required to meet just one set of criteria, making the listing process simpler and less costly. Companies can later decide if they want to opt in for stricter rules (e.g. shareholders having increased control) if they want to be featured on the main FTSE 100 market. These new rules are aimed to make the UK market more attractive to new, growing companies. Now that the UK is no longer a member of the EU, it is increasingly important that the country keeps a competitive edge against EU capitals like Paris and Amsterdam if it wants to maintain its status as Europe’s most dominant financial capital.

What's the big picture effect?

The FCA reforms are an attempt to capitalise on last year’s stock market boom which was the best year for stock market fundraising since 2007. In 2021, companies raised £16.9bn on the LSE which marked a notable increase from the slump London listings have had since the 2008 financial crisis. By making the listing process simpler, the FCA hopes to incentivise more companies to list on the LSE and continue the market’s recent success.

The changes also make for a shake up of financial regulations, which is arguably long overdue. Clare Cole, director of market oversight at the FCA, said that listing rules “have not changed since the 1980s”. Many view the proposed new rules as an opportunity for the UK stock market to become more welcoming of diverse businesses. The distinction between standard and premium listings has cast a stigma over businesses that opt for the lower regulatory requirements. The FCA’s proposal to require all businesses to first go through a standard listing minimises the likelihood of the standard being perceived as inferior. If standard listings are viewed as more legitimate, it may encourage more businesses to list on the LSE despite not meeting the high premium requirements. For example, Delphine Currie, a partner at law firm Reed Smith, said that changes to the listing process are likely to benefit science and biotech startups which may have struggled to meet the premium asset ownership requirement.

However, others do not see the proposed changes as such a positive development. Charles Howarth, corporate partner at law firm CMS, argued that the FCA’s reforms are not significant enough to attract more companies to the LSE. Howarth said that most companies “resort” to the standard listing but still have “aspirations to step up later”. This suggests that the new system will not attract more businesses, because what really attracts businesses is eligibility to the FTSE index, which is only possible under a premium listing. Howarth and other sceptics therefore believe that further thought is necessary to make the UK market more attractive to businesses.

Although there is some mixed opinion concerning the FCA’s proposal, it is widely acknowledged that stock market systems must adapt if they are to be successful – none more so than the UK’s as the country enters a post-Brexit age.

Report written by Jola Atunwa

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