UK: FCA proposes new premium listing category for sovereign-controlled companies

In February this year the FCA launched a discussion paper (DP 17/2) ‘Review of the Effectiveness of Primary Markets’.  The paper discussed the role of listed primary markets as an important component of the broader capital markets landscape, and the structure of the UK listing regime in supporting that role.

The work on the review continues. However, the FCA is bringing forward a specific proposal for a targeted set of changes to the premium listing regime ahead of other possible proposals arising from the review.  

The proposal will address companies controlled by a shareholder that is a sovereign country.  The proposal aims to enable companies which may the subject of major privatisation transactions to choose the higher standards of premium listing, rather than standard listing.  Andrew Bailey, FCA Chief Executive, said:

“Regulatory protections for investors lie at the core of the listing regime. However, it is important that these protections remain well-targeted. Refining the listing regime in this way would make UK markets more accessible whilst ensuring that the protections afforded by our premium listing regime are focused and proportionate.

“Sovereign owners are different from private sector individuals or companies – both in their motivations and in their nature.  Investors have long recognised this and capital markets are well adapted to assess the treatment of other investors by sovereign countries.”

The rationale for having a distinct category for these companies is to create a new listing option for companies of a distinct type which may wish to access UK markets and choose the higher standard represented by our premium listing regime rather than standard listing. Over the past decade the FCA has given careful consideration to the appropriate treatment within the premium listing regime of companies with controlling shareholders.  However, this consideration largely addressed instances where the companies were controlled by private sector entities. 

The new premium listing category would include the full suite of investor protection applicable to companies in the existing premium listing category with two modifications the FCA considers appropriate for companies of this type:

• the related party rules would operate on a modified basis: the sovereign controlling shareholder would not be considered a related party for the purposes of the UK listing rules;
• the controlling shareholder rules  will not apply to companies in the new category in respect of the sovereign controlling shareholder.

These highly targeted modifications to the regime recognise that sovereign countries are different from private sector entities.

In addition, the new listing category will be open to companies who want the listing of their interests in their equity to be in the form of Depositary Receipts (DRs).

The review the FCA began with the DP17/2 discussion will continue, and in due course we will be summarising, in one or more documents, the feedback we have received from stakeholders together with more detailed proposals for reforms, should we consider those desirable.