FSA Consults on Changes to the Listing Rules to Enhance the Effectiveness of the Regime
The Financial Services Authority (FSA) has proposed a number of changes to the Listing Rules that aim to enhance the effectiveness of the Listing Regime. The Listing Rules set out the requirements for companies listed in the UK and are the responsibility of the United Kingdom Listing Authority (UKLA), operating under the FSA.
The proposed changes follow a consultation in January 2012 on the premium listing regime, amid market debate on the issues of free float, minority shareholder protection, corporate governance and the IPO market in general.
The FSA has discussed its thinking and proposals with the Financial Reporting Council (FRC), which is responsible for the UK Corporate Governance Code, and FTSE. The proposals fall under two headings:
Free float provisions
The free float requirements are set at an EU level and allow the FSA to consider a free float of below 25% if there is sufficient liquidity. The amount of shares in public hands potentially plays a role in giving shareholders sufficient power to counterbalance a dominant shareholder. However, the FSA does not believe that an increase in the free float requirement is a proportionate way to address the governance issues that have been raised in this context.
The FSA proposes:
detailing the circumstances where we might consider modifying the 25% free-float requirement for premium listings, indicating that any modification beneath 20% would be unlikely; and
removing the requirement for a minimum absolute percentage free float within the standard segment, provided that sufficient liquidity is present.
The FSA proposes to further strengthen the Listing Regime by adopting greater corporate governance requirements for companies with a dominant shareholder. The FSA will increase the tools available to independent shareholders to influence the governance of the companies in which they have invested. These proposals include:
introducing the concept of a ‘controlling shareholder’;
requiring an agreement is put in place to regulate the relationship between such a shareholder and the listed company;
and ensuring that this agreement is complied with on an ongoing basis. This will ensure that the company is managed independently from that shareholder.
The FSA also recognises the important role that the independent directors play in these circumstances. Therefore it will also insist on a majority of independent directors on the board where a controlling shareholder exists and introduce a new dual voting procedure to allow independent shareholders to have more say in their appointment.
At the same time the FSA is making clear that certain types of company are incompatible with a premium listing including those with voting arrangements that have the potential to subvert or circumvent the investor protections that the premium listing provides.
David Lawton, the FSA’s director of markets, said: “We believe that these proposals will strengthen the investor protections afforded by the Listing Regime, particularly for companies with controlling shareholders. Of course, it is primarily the responsibility of shareholders to use these new provisions effectively.”
Following the January consultation the FSA also confirms further changes to the Listing Rules in relation to reverse takeover, sponsor regime, externally managed companies, financial information requirements and transactions.