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Why should I read this?

The proposals broadly maintain the approach set out the initial consultation published in May 2023, although there is much more detail now provided. The proposals follow a feedback and engagement process carried out by the FCA.

The rationale for the proposed changes has been well documented. The reforms aim to make the UK’s listing regime more accessible, effective and competitive, encouraging companies to list and grow in the UK, whilst retaining high standards of disclosure to enable shareholders to exercise stewardship.

At the heart of the proposals is the removal of the current ‘premium’ and ‘standard’ listing segments and creating a new ‘commercial companies’ category for equity share listings.

The proposed changes cover multiple areas, including eligibility, significant and related party transactions, dual/multiple class share structures and sponsors. The fundamental nature of the changes will involve creation of a completely new UK Listing Rules sourcebook (UKLR).

Overview of the proposed new UK regime

The key proposed reform is to create a single category for UK listings of equity shares in commercial companies (the commercial companies category). This would replace the current premium and standard listed segments for commercial companies with or seeking a new ‘primary’ equity share listing on the main market in the UK.

There will be a new closed transition category for commercial companies that have an existing standard listing of equity shares (and are not shell companies or secondary listed issuers). There will be a ‘proportionate’ transfer process for issuers wishing to move to the commercial companies category.

Other listing categories will exist for sovereign controlled-companies, closed-ended investment funds, open-ended investment companies, shell companies and special purpose acquisition companies (SPACs), a new international secondary listing category and discrete categories for non-voting shares, depository receipts, debt securities, securitised derivatives, and warrants and miscellaneous instruments.

New commercial companies category

The key reform proposals for commercial companies to be aware of include the matters summarised below.

1. Eligibility

There will be no requirement for historical financial information, revenue track record and clean working capital statements at admission, although prospectuses will still require disclosure of a financial track record of up to three years and a working capital statement.

There will be a sponsor requirement for new applicants, requiring declarations similar to existing declarations, including that an issuer has met its prospectus obligations and has a reasonable basis for the working capital statement within it.

2. Eligibility and continuing obligations

The proposed changes include:

• Control and independence: Removing the eligibility and ongoing requirements that a company has an independent business and has operational control over its main activities.
• Controlling shareholders: Retaining a requirement for independence from a controlling shareholder via a written controlling shareholder agreement and maintaining certain related voting controls.
• Dual/multiple class share structures: Permitting issuers to have dual/multiple class share structures at admission. Enhanced voting rights can only be held by specified persons, but without mandated time-based sunset clauses, while retaining voting restrictions on certain matters, including dilutive transactions, and cancellation of listing.

3. Continuing obligations

Continuing obligations for the commercial companies category will be simplified compared with those currently applicable to premium listed companies.

• Significant transactions: A disclosure-based regime will replace a prior shareholder vote for transactions meeting the current class 1 threshold of 25% on the class tests. The profits test will be removed and there will be new guidance on what constitutes ‘ordinary course of business’.
• Notifications: Enhanced market notifications will be required for transactions meeting the current class 1 threshold. This is intended to provide key information including financial information, but will not mandate working capital statements or re-stated historical financial information.
• Related party transactions: Where a transaction involves a related party and meets the 5% threshold on the class tests, the following will be required: board approval, a market notification, and a sponsor ‘fair and reasonable’ opinion.
• Reverse takeovers: Will continue to require an FCA approved circular and prior shareholder approval for transactions where class test ratios are 100% or more, or which involve a fundamental change of business.
• Share buy-backs, non pre-emptive discounted share issuances and cancellation of listing: Will still require a shareholder vote.
• Annual reporting: Issuers will be required to make comply or explain disclosures against the UK Corporate Governance Code, report on climate-related matters (TCFD) and diversity, and otherwise maintain most premium listing annual disclosures.

Proposed application of the sponsor regime

The FCA propose that the sponsor regime be applied to admission and to certain limited actions within the proposed commercial companies category, the closed-ended investment funds category and the proposed shell companies category.

Post-initial listing, sponsor involvement will be targeted at circumstances where an issuer is facing a fundamental change, such as a reverse takeover. Otherwise, the ongoing role will be limited broadly to significant further issuance listing applications requiring a prospectus and sponsor fair and reasonable opinions for related party transactions. This would reduce the number of instances when listed companies would be required to appoint a sponsor.

The FCA also propose to make changes to the sponsor competence requirements. This includes allowing wider factors to demonstrate sponsor competency and extending the lookback period for relevant experience from three to five years The FCA plan to introduce these changes in Spring 2024 ahead of the wider reforms.

What’s next?

We are reviewing the detail of the consultation paper (which runs to 400 plus pages). We will be providing more detailed updates and analysis of key aspects of the proposed changes in the new year.

The period for consultation on the proposals remains open as follows:

• The consultation period for the proposal noted above regarding sponsor competence closes on 16 February 2024.
• The consultation period for the proposed UK Listing Rule changes closes on 22 March 2024.

The FCA aim to publish a policy statement setting out the final UKLR at the start of the second half of 2024. The FCA intend to implement the changes after a very short period following publication of the policy statement by the second half of 2024. By way of exception, the proposals regarding sponsor competence will be implemented in the Spring of 2024.

The consultation paper includes the first tranche of the draft UKLR instrument, which mainly covers the core requirements for the commercial companies category and sponsor requirements. A second tranche of the draft UKLR instrument will be published in Q1 2024. 

How Eversheds Sutherland can help

The proposed changes will introduce fundamental changes both for companies with an existing listing in the UK and those considering a UK listing. If you would like to discuss the impact of the proposed changes and what to do now to prepare, then please get in touch with one of our PLC Advisory Team contacts below.

Further reading

FCA news item: Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms

CP23/31 -  Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms