UK stock market rules overhaul not universally welcomed | Business News

The Financial Conduct Authority (FCA) has given the green light to the biggest overhaul of the rules it uses to govern UK-listed companies in three decades.

The top financial regulator hopes the reforms, due to come into force on July 29, will reverse the recent downturn in the UK stock market.

There is a shortage of companies listed on the London Stock Exchange, while at the same time a number of companies have moved their main stock market listing from the UK to the US.

The latest is Flutter Entertainment, the parent company of Paddy Power, Betfair and Sky Betting & Gaming, but others have disappeared in recent years, including CRH, Tarmac's parent companybuilding materials supplier Ferguson, German tour operator TUI and Irish paper and packaging giant Smurfit Kappa.

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London was also overlooked when the Cambridge-based chip designer Arm Holdings chooses New York over Londonwhere it was previously listed, when it returned to the stock market last year.

The rule changes include a number of elements, which are part of a wider package of reforms introduced by the last Conservative government, including the so-called “The Edinburgh Reforms“, which the new Labour government adopted.

Among the major changes is the removal of the requirement for shareholders to vote on major transactions and “related party transactions,” where a company enters into an agreement with another company with which it already has a business relationship. This change effectively gives more power to corporate boards and takes it away from investors.

The previous need for a vote on “related party” transactions was seen as a key reason why Arm Holdings decided not to pursue a London listing.

The second change concerns the possibility for founders or directors of a company to benefit from “double” or enhanced voting rights for an unlimited period. This brings the UK closer to the situation in the United States, where such arrangements are common.

The aim is to attract more growth companies, particularly in the technology sector, where founders want to retain control of the company after it goes public. Similarly, institutional investors who backed a company before its IPO will be able to benefit from enhanced voting rights for up to 10 years.

A third change will eliminate so-called “premium” and “standard” listings and replace them with a single category for shares. The premium listing, which required companies to adhere to stricter rules and standards, was at the center of a campaign seven years ago to attract investors. Saudi Aramcothe world's largest oil producer, is to list in London. A number of fund managers have opposed changing the rules to allow Aramco to list at a premium, which, if it had listed in London, would have earned it a place on the FTSE 100.

Confirming the rule changes, Sarah Pritchard, the FCA's executive director for markets and international, admitted the new rules would allow for greater risk but insisted they would better reflect the risk appetite the UK economy needs to achieve growth.

She said the changes followed “significant commitment across the market”.

Ms Pritchard added: “A thriving financial market is essential to providing investment for growing businesses, and returns and choice for investors. That’s why we’re taking action to make it easier for those looking to float in the UK, while retaining essential protections so investors can help guide the businesses they part-own.

“Regulation is only part of the answer to help the UK achieve sustainable growth. Other factors also play an important role in a company’s decision to list. We are committed to working continuously with all those who have a role to play in supporting a thriving UK financial market and thank everyone who has contributed to this work so far.”

Among those who welcomed the rule changes was Dame Julia Hoggett, chief executive of the London Stock Exchange, who has been at the heart of efforts to attract more companies to list in London and make the City a more attractive place to do business.

She said: “We congratulate the FCA on delivering the largest set of reforms to our listing rules in decades. It has been encouraging to see how the entire ecosystem has come together to achieve this ambitious goal.

“This will ensure that UK-listed companies can benefit from a listing regime that better supports their growth ambitions, increases investment opportunities for UK investors and supports the UK economy.”

Rachel Reeves, the new chancellor, also gave her blessing to the reforms, saying: “The financial services sector is vital to the UK economy and at the heart of this government's growth mission.”

“These new rules represent an important first step towards reinvigorating our financial markets, bringing the UK in line with its international peers and ensuring we attract the most innovative companies to list here.”

So the rule changes clearly have many supporters in high places.

But make no mistake: they are by no means universally popular in the Square Mile.

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Some investors fear they represent an unacceptable lowering of standards that could end up leaving savers – who invest in the stock market through their pensions, ISAs and life insurance policies – with even more outdated products in their portfolios.

A group of pension funds led by Railpen, which manages the retirement savings of 350,000 rail workers, wrote to the FCA last month calling for a review of the regulations. They pointed to rule changes made in 2006 that were intended to make the UK a more attractive listing destination for resources companies but instead led to a series of investment disasters, including for Eurasian Natural Resources Corporation (ENRC), a Kazakhstan-based mining company that was once a FTSE 100 member, and Bumi, a coal miner based in Indonesia.

Critics of the reforms have also wrongly suspected a frame-up, as Nikhil Rathi, the FCA's chief executive, was previously a senior executive at the London Stock Exchange.