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Recommendations from the UK Listings Review published

  • United Kingdom
  • Corporate


Amid the coverage of the Chancellor’s budget announcements on 3 March 2021, you may have missed that the report of the independent review into the UK’s listing regime was also published.

The UK Listing Review (“Review”), led by former EU Finance Commissioner, Lord Hill, was launched by Chancellor Rishi Sunak in November last year to “further enhance the UK’s position as an international destination for equity listings”. The Review was asked to examine how companies raise equity capital on UK public markets and it makes a series of recommendations to improve the process, whilst aiming to maintain high standards of corporate governance, shareholder rights and transparency.

The Review has made some far reaching recommendations for UK listings in six broad areas – including improving the environment for companies to list in London, re-designing the prospectus regime, tailoring information to meet investors’ needs better and measures to empower retail investors and improve capital raising for existing issuers. We examine some of the key proposals below.

Key recommendations

  1. Monitoring and delivering results

The Review recommends that the Chancellor should present an annual report to Parliament on the State of the City to cover the issues within the scope of the Review and also comment on broader capital markets issues. The first such report could be delivered early as 2022.

Further, the Review recommends that the current statutory objectives of the Financial Conduct Authority (“FCA”) be extended to enable it, in its regulatory activities, expressly to take into account the UK’s overall attractiveness as a place to do business by including a growth or competitiveness requirement. The Review requests HM Treasury to consider this as part of the ongoing Future Regulatory Framework Review.

  1. Improving the environment for companies to list in London

This section of the Review addresses a number of areas which it considers have put the City at a disadvantage as a listing venue when compared with other countries and markets. The recommendations will be of interest to any companies that are currently considering a listing.

  • Dual Class Share Structures

The Review recognises that dual class share structures can be attractive for founder-led companies. Permitting dual class share structures on the premium segment would therefore provide founders with a transition period during which they are able to ensure that they retain control of the company and would not be subject to an opportunistic takeover bid.

The Review recommends that dual class share structures should therefore be permitted on the premium segment of the Official List, subject to certain conditions to maintain corporate governance standards. These safeguards would include a maximum duration of the arrangements of five years; a maximum weighted voting ratio of 20-to-1; a requirement for holders(s) of ‘class B’ shares to be a director of the company; voting rights being limited to ensuring the holder(s) can continue as a director and block a change of control for the duration of the dual class share structure; and limitations on the ability to transfer ‘class B’ shares.

  • Re-branding and re-marketing the standard listing segment

The Review recommends that the standard listing segment should be re-branded, re-launched and promoted as a flexible venue for companies of all types to list in London. It is also noted that issuers often see the standard segment as unattractive due to the lack of index inclusion. Investor groups should be encouraged to publish industry guidelines on areas that they see as particularly important that would allow for companies listed on the rebranded segment to be included within leading indices.

  • Free float requirements

The Review notes that the current Listing Rule requirements on free float, requiring 25% of shares to be in public hands, can be a deterrent to listing, particularly for high growth and private equity-backed companies.

The Review recommends a re-assessment of the free float requirements. In addition to widening the current definition of shares in public hands, it recommends lowering the absolute requirement percentage of shares in public hands from 25% to 15% for all companies in both listing segments. In addition, there should be more choice for companies to use measures of liquidity other than an absolute free float percentage. As an alternative to complying with the 15% threshold:

  • for companies with larger market capitalisations, it is suggested that they ought to be able to demonstrate that they have a minimum number of shareholders, a minimum number of publicly held shares, a minimum market value of publicly held shares and a minimum share price to support a liquid market; and
  • for smaller companies, it is suggested that a similar mechanism to that which applies on AIM could be used, i.e. the level of free float and likely liquidity would be something to be considered by the sponsor as part of its overall eligibility considerations when bringing the company to market. This would also require them to have in place an arrangement with an FCA-authorised broker to use its best endeavours to find matching business if there is no registered market maker on the relevant market.
  • Revisions to the Listing Rules to encourage the listing of SPACS

The Review notes the growing trend for using SPACs - special purpose acquisition companies, which are cash shells formed with a view to making an acquisition. SPACs are popular in the US and are seen as likely to become increasingly popular sources of finance for European companies seeking alternative routes to market to a conventional IPO.

The UK is currently not perceived to be a viable location to list a SPAC. A key factor is the Listing Rules requirements regarding reverse takeovers, which can require the shares of SPACS to be suspended on the announcement of a potential acquisition.

The Review recommends that the FCA remove this rebuttable presumption of suspension currently provided by the Listing Rules and introduce additional protections for shareholders, such as a shareholder vote and the right to redeem their initial investment prior to completion of an acquisition.

  1. Re-designing the prospectus regime

The Review recommends a fundamental review of the prospectus regime so that it dovetails better with the breadth and maturity of the UK capital markets but also better reflects the types of businesses now coming to market as well as those that are already listed. It considers that current regulation attached to prospectuses has led to “a ballooning in their size and a reduction in their usefulness” and that the current regime can often lead to retail investors being excluded from a capital raising due to the increased time and cost involved in constructing an issuance to include them. The proposals to rectify this situation include:

  • treating offers to the public and admission to a regulated market separately;
  • changing how the prospectus exemption thresholds function so that documentation is only required where it is appropriate in the context of the type of transaction and circumstances of the capital raising; and
  • the use of alternative listing documentation where possible, eg for secondary issues undertaken on a regulated market.

The Review also recommends maintaining the existing regime for dual and secondary listings, but considering whether prospectuses drawn up under other jurisdictions’ rules can be used to meet UK requirements.

  1. Tailoring information to meet investors’ needs

The proposals here focus on:

  • Amendments to the liability regime for issuers and directors to allow forward-looking information to be included in a prospectus.
  • Reviewing the provisions for scientific research-based companies regarding revenue-earning requirements in order to broaden their application to a wider range of high growth, innovative, companies across a variety of sectors.
  • Amending the requirement for historical financial information covering at least 75% of an issuer’s business for premium listings, so that this test is only applicable to the most recent financial period within the three-year track record.
  1. Measures to empower retail investors and improve capital raising for existing issuers

The Review recommends considering how the use of technology can improve retail participation in corporate actions and stewardship.

It also recommends considering how to improve the efficiency of further capital raising by listed companies by re-establishing the Rights Issue Review Group (“RIRG”) that was formed at the time of the 2008 financial crisis. The purpose of this would be to look again at the RIRG’s outstanding recommendations in relation to capital raising models used in other jurisdictions, including in light of technological advances, with a view to developing accelerated and more efficient secondary fundraising processes that better facilitate the involvement of retail investors.

The Review also considers that the relatively recently introduced conduct of business rules in the FCA Handbook relating to the inclusion of unconnected research analysts in the IPO process should be considered. It notes that in practice, these changes mean an extra seven days being added to the public phase of the IPO process, as well as cost and time implications for the company seeking a listing.

  1. Wider financial ecosystem

The Review recommends that the following aspects of the wider financial ecosystem also be considered:

  • Unlocking pension investment.
  • Ensuring a competitive tax environment.
  • Better funded SME research provision.

Next steps

Implementing the proposed measures would require a combination of amendments to the Listing Rules, which will require consultation by the FCA, and legislation to be brought forward by HM Treasury. Some of the measures will also require implementation by the Department for Business, Energy and Industrial Strategy. The Government will now consider the Review report and confirm next steps.

The FCA has welcomed the Review and responded with a statement saying that they will carefully consider the above recommendations for changes to the Listing Rules and, where appropriate, will act quickly with the aim of publishing a consultation paper by the summer. Subject to feedback, relevant rule changes could be made by the end of the year. The FCA also supports the proposal for a fundamental review of the prospectus regime, and will work further with the Government to discuss and develop policy options.


The Review has come at a time when the Covid-19 pandemic has highlighted the need for companies to be able to raise often significant amounts of equity capital and to be able to do so quickly and efficiently whilst, at the same time, ensuring that retail investors are not ignored.

Following the end of the Brexit transition period, the Government now has greater freedom to chart its own course and diverge from the EU rules that underpin the current UK listing and prospectus regime in order to maintain the City’s reputation as a well-regulated, leading global financial centre that is attractive to the technology-led businesses that proliferate today and which competes favourably with other regimes in other jurisdictions. The proposals set out in the Review, while they require further review, consideration and the detail to be worked out through consultation, are far-reaching and, for existing listed companies, go much further than EU initiatives such as the EU Recovery Prospectus that will be available shortly to issuers in EU member states to assist with capital raising in the light of the Covid-19 pandemic.

Companies considering a listing, particularly those in high growth, science and technology-led sectors, will be interested in the proposals around dual class share structures (which are likely to go some way to bridging the ‘attractiveness’ gap between the UK and the US and other jurisdictions where similar options are available) and the potential relaxation of the free float requirement. The proposals also echo the recommendations on Fintech listings around free float requirements and golden or dual class share structures set out in the recently published Kalifa Review of UK Fintech.

Whilst Brexit undoubtedly creates an excellent opportunity to look again at the role of the capital markets as a key part of the UK’s financial services ecosystem in the 21st century and to exploit the opportunities available to make London a vibrant, attractive place to do business for fast-growing international companies, at the same time, it will be important to balance that ambition with the need to build-in appropriate safeguards to any proposed rule changes as a consequence of the Review so that the high standards of corporate governance and transparency for which the City has a reputation and that also attract institutional investors to companies listed in the UK are maintained.

Useful Links

UK Listing Review

News story: Independent review recommends reforms to UK Listing Rules to boost growth and markets

Review webpage