Reform of the UK Listing Regime - Rules Finalised

The FCA has today published PS 24/6 providing feedback on its earlier consultation in CP 23/31 and including the final form of the UK Listing Rules that will replace the current listing rules with effect from 29 July 2024.

In the coming weeks we will publish a series of blogs exploring the impact of the new UKLR on existing and prospective issuers of shares and other securities.  

In this blog we highlight key areas in which the FCA has made changes from the draft UKLR published in March.

If you would like more information on any aspect of the reforms, please get in touch with your usual Freshfields capital markets contact.

Key changes from previous proposals

• Significant transaction disclosure: The FCA has made changes to the enhanced disclosure required in relation to a significant transaction at the 25%+ class test threshold (this disclosure replaces the former premium listing requirements for shareholder approval). The final rules remove the need to include two years of target financial information for acquisitions, although this is retained for disposals (this includes the ability, where financial information is not available or is not capable of being produced, of including instead an explanation of the value of the consideration and that the board considers it to be fair and reasonable).

The final rules also, helpfully, allow certain disclosures to be delayed. A notification will still need to be made as soon as possible after the terms of a transaction are agreed, but the requirements at this stage of the timetable will be reduced to a slightly enhanced version of the former Class 2 announcement. The over-arching ‘sweeper’ disclosure obligation for this early notification is also reduced, requiring only that issuers consider whether further relevant information should be notified at this stage. Additional information will then need to be notified as soon as possible after the terms of the transaction are agreed or the listed company becomes, or ought reasonably to have become, aware of the information (with a long-stop date requiring disclosure by completion). Companies will be required to notify the market of completion as soon as possible after it has taken place, and to confirm that there has been no material change affecting any matter in a previous notification that has not been disclosed.

• Significant transactions by companies in severe financial difficulty: The final rules do not retain the concept of a company in ‘severe financial difficulty’ or the prescriptive list of additional disclosures previously suggested for such companies when undertaking a significant transaction. The FCA has instead included guidance on its expectations on this point and the types of information issuers should consider including in disclosures.
• Controlling shareholders:  Companies on the commercial companies category will not be required to enter into a relationship agreement containing specified independence provisions with any controlling shareholder (30%+). Instead, the rules provide a new mechanism through which directors can challenge any shareholder resolution proposed by a controlling shareholder or its associate; if the director considers it is intended or appears to be intended to circumvent the proper application of the UKLR, the accompanying circular to the resolution must include a statement by the board of the director’s opinion. The rules also streamline guidance on the requirement for companies with a controlling shareholder to demonstrate it can carry on an independent business as its main activity: while the FCA will retain discretion to refuse an application for admission on the grounds of investor detriment, the final rules remove specific guidance around potential controlling shareholder influence.
• Dual class share structures (DCSS):  In addition to the ability of companies to allow natural persons to have open-ended enhanced voting rights shares, the final rules also permit pre-IPO institutional investors that are legal persons to hold time-limited enhanced voting rights shares. Enhanced voting rights held by a legal person must expire after a maximum time period of 10 years.
• International secondary listing: The FCA has retained this category in substantially the same form as in its earlier proposals, but has introduced guidance that it may modify the location of central management and control requirement (that an applicant's place of central management and control be situated in either its country of incorporation or the country of its qualifying home listing) on a case-by-case basis where satisfied the issuer’s arrangements are not intended to reduce, and do not have the effect of reducing, the FCA’s ability to monitor compliance with relevant rules. The FCA has also made an amendment to the qualifying home listing requirement, removing the need for issuers to be subject to the primary listing rules of an overseas market without modification; FCA commentary in the policy statement suggests this is designed to ensure Foreign Private Issuers in the US are not excluded.
• Listing principles and board confirmation: The FCA has retained its changes to the listing principles with some amendment to guidance. The associated board confirmation has also been updated to more closely align to the listing principles and will now only be required on an initial application for admission (as such it does not apply to existing issuers, or to issuers that may transfer to a new category).
• Closed-ended investment funds: The FCA has aligned the significant and related party transactions regimes for closed-ended investment funds more closely with that for commercial companies, and as such the final rules will require disclosure rather than separate shareholder approvals or circulars for the majority of such transactions. Additional requirements will remain, however, for certain matters relating to the investment manager.
• Shell companies: There are also changes for shell companies, with the final rules moving closer to the rules that applied on the standard segment, in particular making additional investors protections voluntary to avoid the presumption of suspension (this includes ring-fencing public shareholder monies and, for an initial transaction, shareholder approval and a director ‘fair and reasonable’ statement). The sponsor regime will still apply to this category.

Next steps

The UKLR apply from 29 July 2024. The FCA continues to update its Knowledge Base to reflect the UKLR (Primary Market Bulletin 48 and Primary Market Bulletin 50).

FTSE is expected to shortly consult on changes to the FTSE UK Index Series Ground Rules to reflect the impact of the listing regime reforms; it has previously indicated that it expects the companies listed on the commercial companies and closed-ended investment fund categories to be eligible for inclusion in the UK Index Series. This approach would maintain eligibility for issuers currently on the premium segment.

In the connected area of prospectus reform, the FCA plans to publish consultation proposals on the new public offers and admissions to trading regime in summer 2024.