UK financial watchdog postpones Shein listing amid supply chain investigation | shane

UK financial regulators are taking longer than usual to approve the stock market listing of fast-fashion retailer Sheins as they check supply chain oversight and assess legal risks after a Chinese Uyghur advocacy group objected to the listing. They said it would take. problem.

Britain's Independent Anti-Slavery Commissioner, the Home Office's watchdog, has raised concerns within the government about Shein's IPO due to allegations about the labor practices of its suppliers.

Singapore-based Shein, which sells $5 tops and $10 dresses mostly made in China in 150 markets around the world, filed a confidential filing with the Financial Conduct Authority in early June for a London listing. .

Shein is also awaiting approval from Chinese securities regulators for the London IPO, the two sources said, adding that approval would come after the FCA decision.

Advocacy group Stop Uyghur Genocide (SUG) filed a legal challenge last June and in August sent documents to the FCA alleging Shein uses cotton from China's Xinjiang region.

The United States and NGOs have long accused China of human rights abuses in the Xinjiang Uyghur Autonomous Region, where they say Uyghurs are forced to produce cotton and other goods. Beijing has denied any abuses.

Shein declined to answer questions from Reuters about the FCA process. Shein has a zero-tolerance policy for forced labor and is committed to respecting human rights, a company spokesperson said.

Last week, the company announced a global external ESG advisory board to strengthen its governance.

In a sustainability report published in August, Shane said it had found two cases of child labor in its supply chain in 2023 and no cases of forced labor. Like Primark and other clothing retailers, Shein uses isotope testing service Oritain to determine the origin of the cotton, which makes up 9.9% of the fabric in Shein brand products.

The FCA declined to comment on the listing and delays. An FCA spokesperson said the timeline for IPO approval depends on each individual case. Market experts say it usually takes months to make a decision.

The FCA has no obligation to assess evidence presented by civil society groups and will generally allow investors to take their own positions, said Lorna Emson, a partner at law firm Macfarlanes. When compliance issues are discovered, they tend to resolve them confidentially with the company itself.

But the pressure from NGOs appears unlikely to ease. Lucy Blake, a partner at law firm Jenner & Block, said regulators were being given more thought and should be given more funding and more scrutiny from NGOs and activist communities amid growing litigation.

NGOs are not alone in raising concerns about Sheins' IPO. The independent anti-slavery commissioner wrote to the Home Office and Department of Enterprise about the IPO in June, according to a previously unreported letter obtained by Reuters through a Freedom of Information request.

Encouraging companies like Shein to enter the UK market means unintentionally endorsing poor labor practices and prioritizing attracting businesses to the UK over human rights violations, Commissioner Eleanor Lyons wrote.

The Home Office and the Department for Business jointly responded that the FCA determines the list independently and that the UK has regulations in place to prevent modern slavery.

Like other retailers, Shein must comply with European Union regulations on forced labor and the United States' Uyghur Forced Labor Prevention Act. Both bills are considered stronger than Britain's Modern Slavery Act.

The FCA, which recently simplified listing rules, is under pressure from the five-month-old Labor government to end its IPO drought.

In a letter to the FCA in mid-November, Rachel Reeves said she wanted to support innovative new companies to enter the market. The Prime Minister also said regulation should focus more on growth rather than risk aversion.

The FCA must assess Shein's governance and ensure disclosures are complete if SUG applies for a judicial review of the IPO's approval, a regulatory lawyer told Reuters on condition of anonymity.

The FCA declined to comment on SUG's possible legal challenge or application for judicial review.

SUG managing director Rahima Mahmut told Reuters she would meet with lawyers this week to discuss next steps.

NGO ClientEarth applied for a judicial review of the FCA's decision to approve the IPO of oil and gas producer Ithaca Energy last year, but the High Court rejected the application.

Even in this case, some lawyers believe SUG's application for judicial review will fail.

The performance of Shein's IPO, which valued it at $66 billion in a funding round last year, will partly depend on what risks the FCA decides should be included in the prospectus and how they are priced.

Worker exploitation has been rampant in the supply chains of retailers and brands around the world, not only in low-cost fashion but also in luxury goods.

Sheins sales are expected to reach $50 billion this year, up 55% from 2023, according to Coresight Research.

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