UK Listing Rules: the FCA has played its part, now it is over to the market

The Financial Conduct Authority's (FCA) much-anticipated new UK Listing Rules took effect on July 29 — the most significant changes to the UK listing regime in more than 30 years. Hot on their heels, the FCA is consulting on making it easier for companies to offer shares to the UK public and to raise additional capital once listed, using powers delegated to it under the Public Offers and Admissions to Trading Regulations 2024.

This could result in another round of radical changes for listed companies. The new regimes, taking the UK further from the EU rulebook, are part of a wider continuing effort, the regulator has said, to achieve a world-class UK market ecosystem and "others will need to consider what they too can do".

With easier access to listing and new capital, removing prescriptive requirements will leave more decisions on the quality and extent of disclosure in the hands of companies, their directors and advisers, with an ever more active "plaintiff bar" waiting in the wings for those that get it wrong. Information provided to investors remains central, and a particular area of risk for an issuer and its board when executing a major transaction or raising capital.

Significant transactions

The FCA has streamlined the process for significant transactions: no shareholder approval, FCA-approved circular, or involvement by brokers in a sponsor role will be required. This should help level the playing field for London-listed companies when looking to compete with unlisted companies and private equity to acquire significant businesses, removing a perceived disadvantage of the old regime.

In place of all this are enhanced disclosure obligations that bite on the transaction's announcement and before it completes, with a confirmation after completion that everything remains as previously announced. There are still some prescribed contents for those announcements, but much more discretion is left to the company: for example, there is no obligation to publish financial information on the target of a significant acquisition.

At the same time, the duties and liabilities of the company and its directors remain the same. This includes extensive duties under the FCA's Listing Rules, including those to take reasonable steps to establish and maintain adequate procedures, systems and controls; act with integrity; and communicate information to the market in a way that avoids a false market.

These are in addition to directors' duties under the Companies Act 2006 and disclosure obligations under the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules and the UK Corporate Governance Code, as well as the Companies Act 2006.

Without the comfort of a shareholder vote, the FCA's approval of a circular, and the oversight of a sponsor about the transaction, it is for the board (and its advisers) to come to a view on what diligence and disclosure is appropriate to discharge its duties. Any disgruntled investors will be able to make their judgment with the benefit of hindsight.

Prospectus regime proposals

Under the 2024 regulations, which will come fully into force only when the FCA has finalised the new rules, public offers and admissions to trading on a UK-regulated market are treated separately. Although public offers of securities will no longer require a prospectus, companies will need to satisfy themselves that they are entitled to make a public offer.

Listed companies and initial public offering (IPO) candidates, for example, will benefit from an exemption for offers of securities admitted or to be admitted to trading (so IPOs, where the offer is conditional on admission, will covered by this exemption). The 2024 regulations retain the concept of a prospectus only in the context of a listing (either for the first time or on a further issue) and the FCA will set rules on its contents in those circumstances.

The consultation sets out how the FCA proposes to use these new powers and, in many areas, suggests the FCA is planning to maintain requirements consistent with the existing UK Prospectus Regulation. Notably, no significant departures are suggested for the prospectus required to obtain a listing on IPO. The possible new threshold for follow-on offers is another matter.

The FCA proposes to raise the threshold at which a prospectus would be required for the listing of additional securities to 75% (from the current 20%), over 12 months, of the number already listed but would continue to permit any issuer to prepare a (full or simplified) prospectus voluntarily.

Non-pre-emptive offers, like placings, looking to take advantage of the raised threshold, will still need shareholder approval (and the preparation of a circular) for the disapplication of pre-emption rights if they want to exceed the threshold set by their last annual general meeting of shareholders: so, while a simpler process than producing a prospectus, not undocumented.

As companies cannot put a standing approval in place at their AGM over 20% (plus a retail element) of share capital, in compliance with the latest Pre-Emption Group Guidelines, adopted under the recommendations of the Secondary Capital Raising Review, the new freedom to undertake new issues without a prospectus, and without requiring further shareholder approval, may be of little practical benefit.

Pre-emptive offers, including rights issues, would be constrained to two-thirds of share capital before shareholder approval would be needed, by the limits of the standing AGM approval for new issuances treated as "routine" by the Investment Association.

For directors considering a capital raise, their duties (as for significant transactions above) will be very much in focus; and in any transaction requiring a shareholder vote the UK Listing Rules and common law requirements for providing shareholders with sufficient information to be able to make an informed voting decision will be an area of particular focus.

As underwriting banks have historically been reluctant to underwrite share offerings where the number of shares being offered represents 20%+ of the issuing company's issued share capital, particularly those to be offered to institutional investors in the United States, one may see companies publishing voluntary prospectuses on larger offers.

Retail investors in the UK are rightly a focus of the reforms. Including a retail element in any offer may also point toward the use of a voluntary prospectus since the UK's financial promotions regime only exempts retail offers when a prospectus is published.

The FCA's proposal goes much further than the approach taken by the EU Listing Act in its equivalent reform of the EU Prospectus Regulation (for which the first wave of changes, including prospectus exemptions, are expected to come into force later in 2024), which will only allow admission of additional listed securities on an entirely undocumented basis up to 30% of the existing listing.

The higher UK threshold should enhance the UK's competitiveness as a listing venue for companies considering future capital raises. That direction of travel is very welcome. Whether full advantage can be taken of it will be subject to risk appetites and market practice as it develops.