The City watchdog is proposing to relax London’s stock market rules in an attempt to attract more fast-growing startups instead of losing out to other financial centres such as New York, Paris and Frankfurt.
The proposals by the Financial Conduct Authority (FCA) would mean scrapping the current two-tier system, where firms decide whether to follow looser rules of a so-called standard listing, or the more rigorous standards of a premium listing.
Instead, all companies would need to meet one set of rules, in order to simplify what some industry bodies have said is the UK’s “complex” and costly listing regime.
Firms would then be given the choice to opt-in to stricter rules – including greater control by shareholders – that are required if companies want their shares listed on the FTSE main markets, including the blue-chip FTSE 100.
The FCA said the changes would help “attract more high quality, growth companies” to the London Stock Exchange.
The UK is hoping to build on last year’s stock market boom, which saw companies raise £16.9bn on the London Stock Exchange. That was the strongest year for stock market fundraising since 2007.
However, the boom followed years of decline, with the number of companies listing in London having dropped by nearly 40% since the financial crisis. Between 2015 and 2020, the UK only attracted 5% of the world’s initial public offerings (IPOs).
“The rules for companies who want to list here have not changed since the 1980s,” said Clare Cole, director of market oversight at the FCA. “Now is a good time to have an open conversation to make sure our rules are fit for the future, so we have a more accessible, competitive and growing market that is attractive to a diverse range of companies.”
The proposals follow recommendations put forward by the peer Jonathan Hill last year, who recommended the FCA slash the proportion of shares that have to be offered to outside investors from 25% to 15%, and allow companies to issue dual-class shares that give founders more control of listed firms. Both sets of rules came into force in December.
Delphine Currie, a partner at law firm Reed Smith, said the proposed changes to the listings regime were likely to help biotech firms and other science startups that have struggled to meet the strict requirements of premium listings.
“Whilst some have criticised the FCA for not going far enough with other changes implemented since Brexit, the fact that 2021 was the most successful year in terms of funds raised on IPO since 2007 … suggests that the FCA is doing something right and this latest set of proposals is likely to attract more companies to London whilst still providing adequate protection for investors,” she said.