Open For Business – changes to the listing rules to make London a more appealing market for fundraising
John Young
by John Young
It has been suggested that Brexit was an attempt by the UK to close itself off from the world, but as demonstrated by the wide array of free trade deals it has entered into and accession to the CPTPP it is opening up to new opportunities. As part of this, the Financial Conduct Authority has been trying to make London’s capital markets more appealing to companies from around the world looking raise money.
The first notable changes took effect in December 2021, increasing the minimum market capitalisation of an Official List company from GBP 700,000 to GBP 30,000,000 and reducing the free float requirement for independently held shares from 25% of the issued share capital to 10%. It may seem surprising that an increase in the minimum market capitalisation would make a London listing more appealing but the FCA felt the change would improve the reputation of the market. The free float change allows the current owners to retain control of a larger portion of the equity on admission. A company can now list with a fund-raise of as little as GBP 3,000,000 and two public investors.
The FCA also decided to allow Dual Class Share Structures (DCSS) to allow founders to retain additional controls post-listing. This was intended to encourage earlier stage growth companies to list.
The FCA now intends to introduce further changes for the listing of shares. It plans to replace the current standard and premium segments of the Official List with a single category of listing, balancing the flexibility to attract diverse companies, with transparency for investors, and market support and oversight. The changes from the current premium segment rules are:
removing the three-year financial track record requirement and the sufficient working capital requirement
amending the requirement for an “independent business” for some industries like franchising
further easing the DCSS rules
replacing the requirement for a relationship agreement with controlling shareholders with a comply or explain rule
removing the requirement for shareholder approval of large transactions in most circumstances
updating the rules about non-ordinary course related party transactions so that all that will be required is for an announcement to be made where the sponsor considers that it is required.
However, following implementation of the proposals all companies with their equity securities on the Official List will need to appoint a sponsor, being a qualified person providing guidance to the company on its responsibilities as a listed company.
In addition to the above, the FCA is looking at updating reporting requirements to improve secondary markets, removing the requirement for a prospectus for most secondary capital raises and easing the rules around forward-looking statements in prospectuses.
The FCA’s approach will make the UK a significantly more appetising jurisdiction for global businesses to raise money for growth. It can clearly be seen that the UK capital markets are open for business.
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John is a Partner in the Corporate, Commercial, and Finance team, specialising in M&A and the business needs of entrepreneurial, high-growth, and family businesses. He advises them from start-up through to listing and beyond. Contact John.
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