The consultation paper confirms a radical approach to bolster the international competitiveness of the UK markets and return to a disclosure-based listing framework.

By Mark Austin, Chris Horton, James Inness, Anna Ngo, and Johannes Poon

The FCA today published consultation paper CP23/31 setting out detailed draft rules for the new UK listing regime. The publication represents the final stage of the journey to reshape the UK Listing Rules which started with the launch of Lord Hill’s UK Listings Review in 2020. Most of the key changes reflect proposals in the FCA’s preceding consultation paper CP23/10 published in May 2023 (see this Latham Client Alert for further details).

Key Measures — the One-Minute Read

• Single segment — The existing premium and standard listing segments will be merged into a new single segment for equity shares in commercial companies.
  A separate transitional segment to give existing standard listed issuers 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 out to the new single segment over time.
  The new structure would also cater 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 Q1 2024 to contain 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 — Certain key barriers to listing (including the current premium segment requirements for a three-year financial and revenue-earning track record and a “clean” working capital statement) will be removed.
• Significant transactions — Class 1 transactions will trigger only a requirement on the company to release a transaction announcement (but with no 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 H2 2024, formerly premium-listed companies who would be part way 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 class 1 transaction by the implementation date would no longer need to publish a circular or proceed with a shareholder vote.
• Related-party transactions — Larger related-party transactions will no longer require compulsory shareholder votes or FCA-approved shareholder circulars. Instead, such transactions would require a transaction announcement and a fair and reasonable opinion from a sponsor.
• Controlling shareholders — The existing premium listing eligibility requirements and continuing obligations in relation to independence and controlling shareholders would largely be unchanged under the single segment. In particular, the requirement to implement a relationship agreement to ensure independence from a controlling shareholder will be retained.
• Dual-class share structures — Dual-class share structures would be subject to fewer regulatory restrictions under the single 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 the IPO candidate.
• Sponsor regime — The sponsor regime will be retained at the point of IPO and reverse takeovers, but materially slimmed down once companies are listed, with fewer instances post-IPO in which an issuer would need to consult a sponsor (in particular, given the reduced compliance burden for class 1 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.

Next Steps

The consultation will 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).

The FCA is expected to publish the final rules for the new listing regime at the start of H2 2024, to be followed by a two-week implementation period before the new regime comes into force. As such, IPO candidates and listed companies undertaking major transactions will benefit from these major changes from H2 2024 onwards.