FCA publishes finalised new UK Listing Rules

Ultimately, the UKLRs aim to make the UK’s capital markets more accessible, effective, and competitive. Below we summarise the key changes to the previous regime and the transitional arrangements.

New 'commercial companies' listing category

The central proposal in consultation CP23/31, which the FCA has now stated it will be proceeding with, is to eliminate the distinct 'premium' and 'standard' listing segments. In their place, a single new 'commercial companies' category will be created. Of particular note, many of the most onerous requirements that previously fell on companies in the premium listing category will not be required of companies listed in the new category.

This ultimately reflects a significant loosening of the regulatory requirements for listing, and indeed the FCA's stated goal is to move broadly towards a more disclosure-orientated regulatory environment, where the emphasis is not on regulatory constraints but on proper disclosure to prospective investors so that they can decide for themselves whether or not to invest.

Application of Listing Principles to all issuers

As an overarching change, the new rules introduce a set of consolidated Listing Principles applicable to all issuers across all listing categories. These now consist of a set of six principles derived from a combination of the previous Listing Principles and some (but not all) of the previous Premium Listing Principles. They are as follows:

1. A listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
2. A listed company must deal with the FCA in an open and cooperative manner.
3. A listed company must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors.
4. A listed company must act with integrity towards the holders and potential holders of its listed securities.
5. A listed company must ensure that it treats all holders of the same class of its listed securities that are in the same position equally in respect of the rights attaching to those listed securities.
6. A listed company must communicate information to holders and potential holders of its listed securities in such a way as to avoid the creation or continuation of a false market in those listed securities.

Listing eligibility

In this area, the FCA is proceeding with its consultation proposals generally in unaltered form. Under the new regime, prospective issuers will no longer be required to produce an unqualified working capital statement as a precondition for listing in the new 'commercial companies' segment. Companies will also not be required to provide historical financial information or to show a minimum track record (and corresponding alternative requirements for companies in certain specialist categories are also being removed).

Following feedback to the consultation, the FCA has indicated that it will consult further on the 'binary' distinction between qualified and unqualified working capital statements later in Q3 2024, as part of the anticipated wider consultation on the new public offers and admissions to trading regime.

The new rules will retain the existing prohibition on arrangements by which the board of the applicant company has limited its discretion to make strategic decisions or transferred this to a person outside the applicant's group. The FCA views this as important in maintaining a clear delineation between commercial companies, belonging in the new category, and other types of structure which are better suited to other listing segments.

Separately, and discussed in more detail below, the new rules have relaxed the 'independent business' and 'control of business' tests for applicant companies.

Continuing obligations

The new regime will not retain the previous requirement that an issuer must be carrying on an independent business as its main activity (except where a controlling shareholder is present, which is discussed below in further detail). The new rules also do not retain the previous requirement that an issuer must exercise operational control over the business it carries on.

Even where a controlling shareholder is present, such that the 'independent business' requirement still applies, the FCA has also updated its guidance on this rule, narrowing the list of factors that it will consider tend to indicate that an issuer is not carrying on an independent business as its main activity.

Dual class share structures and weighted/enhanced voting rights

As proposed in the consultation, the new rules will provide that natural persons may hold enhanced voting rights at IPO and may maintain these rights indefinitely with no 'sunset' provisions. The FCA has taken the view that, as there are restrictions on transfer of these enhanced voting rights, there is a natural longstop in the form of the lifespan of the natural person concerned.

Going significantly further than the initial consultation proposals in response to feedback, however, the new rules will also now allow legal persons such as institutional investors to hold enhanced voting rights at IPO and to maintain these rights thereafter. In this case, there is a 'sunset' provision that provides that these rights must expire after 10 years at the latest.

Taken together, the FCA considers that these changes are likely to incentivise individuals and institutional investors to invest at an early stage, with the prospect of a subsequent listing now unlikely to, or at least not required to, cause the negation of their advantageous 'skin in the game' position as an early investor. It is, in the FCA's view, also likely to encourage more companies to consider listing in the UK as opposed to in other venues internationally which already allow similar arrangements.

One ongoing point of discussion relates to the possibility of mandating the disclosure of vote tallies by shareholder class, in the pursuit of greater transparency – a prospect which was raised by a number of consultation respondents. In this latest publication, the FCA has indicated it would welcome industry-led work to examine the practicalities of implementing this, and that it is open to considering the relative merits of this idea in due course.

Independence from controlling shareholders

In a substantial departure from the previous consultation proposals, the new rules will not require there to be a controlling shareholder agreement ("CSA") in place between commercial companies and their controlling shareholder(s). This had previously been put forward as a proposal to bind the controlling shareholder(s) to comply with specific undertakings, and would have represented a broad continuation of the existing regime. However, consultation feedback pointed out that these agreements would, in practice, lack enforceability, and in particular that the FCA could not enforce such an agreement as it would not be party to it. Respondents also strongly indicated that they thought requiring CSAs in all instances would be distortive, unfair, and have undesirable unintended consequences, as well as presenting a potential barrier to companies listing in the UK which might cause them to look elsewhere.

Instead, the new rules now require that, where the directors consider that a shareholder resolution proposed by a controlling shareholder is, or appears to be, intended to circumvent the proper application of the new listing rules, then the circular accompanying the notice to shareholders of the meeting containing the relevant resolution should contain a statement by the board, giving the directors' opinion on the resolution. The signposted intention, in including this rule, is to strengthen the directors' capacity to challenge such resolutions when they are put forward.

In general, an applicant company will need to be able to show that in spite of the presence of a controlling shareholder, it retains the ability to independently carry on the business that constitutes its main activity, and that it maintains a constitution which allows for the election and re-election of independent directors, as well as some other specific requirements which broadly mirror the position under the existing rules.

Significant transactions

Despite what appears to have been strongly divided feedback between buy- and sell-side market participants as to the proposals contained in the most recent consultation, the FCA has decided to proceed with these proposals in substantially unmodified form.

The new regime in this area will remove any requirement for an issuer to seek prior shareholder approval for significant transactions. In place of this, and in alignment with the FCA's overarching theme of moving towards a more disclosure-based model, there will be a disclosure requirement in respect of 'significant' transactions. For these purposes, a 'significant' transaction is one which is outside the normal course of business and which meets the existing 'class 1 transaction' definition. The relevant class tests for determining this remain unchanged.

In specifying the required form and content for the disclosure required to be given in respect of a significant transaction, the FCA has attempted to tread a centre course. On the one hand, it has not adopted proposals put forward by a number of consultation respondents to fall back solely on the provisions of the Market Abuse Regulation and not to specify any particular form or content to the disclosures. On the other hand, it has not followed suggestions made in the opposite direction, to introduce a specific, prescriptive post-completion disclosure framework.

The approach adopted prescribes the content of the notification to be made pre-transaction, but allows some flexibility as to the timing of when certain information may be notified. A 'sweeper' provision requires issuers to include any further relevant information besides that which is explicitly specified by the new rules. Additional rules as to the content of the disclosures, largely pertaining to the financials of the acquisition target looking back two years, are required in the case of transactions constituting disposals.

Following consultation feedback, the FCA has decided that the notification will not be required to include either audited financial reports on an acquisition target or, in the alternative, a statement that the consideration to be paid is considered to be 'fair'. The FCA has also dispensed with the proposed extra prescriptive list of required disclosures in the case of a company in 'severe financial distress', instead opting to cover this under guidance, with the rationale that to be so prescriptive would introduce friction into transactions pursued by companies to ensure their survival and to escape financial distress, running counter to the objectives of shareholder protection and removing disproportionate barriers to UK-listed companies entering into transactions.

Certain transaction types, such as reverse takeovers and further share issuances, will, under the new rules, constitute exceptions to the general approach to significant transactions. Transactions of these types will still require prior shareholder approval, alongside specific notification and disclosure requirements.

Clarificatory guidance has also been included in the new UKLR sourcebook as to what sorts of transactions will and will not generally be considered to fall within the 'ordinary course of business'. Among other objectives, this seeks to allow greater flexibility for capital expenditure that is consistent with the issuer's business not to be subject to the new disclosure requirements. Notably, the FCA has also chosen to specify as a rule (not merely as guidance) that reverse takeovers will always be considered to fall outside of the 'ordinary course of business'.

Related party transactions

Again in the face of sharply-polarised views, the FCA is broadly proceeding with the proposals outlined in the most recent consultation on related party transactions.

The new rules will require that for any related party transaction which exceeds 5% for any of the existing class tests, issuers will require board approval (excluding conflicted directors from voting), as well as an opinion from the sponsor that the transaction is fair and reasonable in respect of shareholders. The issuer must then notify the market of the transaction and of the sponsor's opinion.

Diverging from the present regime, there will be no requirement for prior shareholder approval of such transactions. There will also not be a requirement to obtain board approval and the relevant sponsor's opinion, and to notify the market, in respect of related party transactions falling below the 5% threshold. There is also an exclusion for transactions entered into 'in the ordinary course of business'.

This position ultimately represents somewhat of a middle ground between the current regimes for standard listing and for premium listing.

Governance and annual reporting

As proposed in the consultation, the new rules will require issuers in the commercial companies segment to disclose, on a 'comply or explain' basis, their adherence to the UK Corporate Governance Code ("UK CGC"). Issuers must state on an annual basis how they have complied with the UK CGC and, where they have not complied, the extent of non-compliance and the reason for it.

Other listing categories

SPACs and shell companies

The UKLRs now feature a tailored category for SPACs and shell companies. This new category is based on previous standard listing requirements and requires a listing sponsor for admission. A company seeking admission in this category must have a constitution requiring the initial transaction to be completed within 24 months of admission, or the company must cease operations and wind up. However, the FCA has provided flexibility for this initial period to be extended by 12 months up to three times subject to shareholder approval.

Non-equity and non-voting equity shares

The UKLRs now include a distinct listing category for non-equity and non-voting equity shares such as retail denomination preference shares and deferred shares. Listings would be based on current standard listing eligibility requirements and continuing obligations.

Implementation and transitional arrangements

These new rules will take effect from 29 July 2024. Therefore, any listing submissions received after this date will be required to be submitted in accordance with the new UKLR.

Transitional arrangements for standard listed issuers

Issuers currently listed on the standard segment of the Main Market will be moved to the new "transition" category. The rules for this category will be the same as those for the standard segment. Starting on 29 July 2024, issuers can apply to transfer from this transition segment to the new commercial companies category using the modified transfer process if they choose to do so.

"Inflight" applicants

An "inflight" applicant is defined as a company seeking to get its securities admitted to listing and has made a complete submission to the FCA for an eligibility review for listing by 4pm on 11 July 2024 but whose securities have not been admitted to listing prior to 29 July 2024 (i.e. the date the new UKLR come into force). As previously proposed, transitional provisions for inflight applicants are included in the UKLRs to avoid a cliff-edge in requirements.