The FCA’s second phase of reform of the Listing Rules: Increasing transparency and encouraging more market participation

41107 the fcas second phase of reform of the listing rules increasing transparency and encouraging more market participation

Speech by Clare Cole, FCA Director of Market Oversight, to The Regulation of Listed Companies Summit

Speaker: Clare Cole, Director of Market Oversight

Event: The Regulation of Listed Companies Summit, Hallam Conference Centre, London

Delivered: 16 June 2022

Note: this is the speech as drafted and may differ from the delivered version


  • The success associated with being listed should be available to a wider range of companies and provide greater investment opportunities for investors on UK markets
  • We want to ensure the value of being listed is simple to understand, removing complexity that isn’t serving a genuine and defined purpose;
  • Investors should be empowered to make decisions about the suitability of listed issuers to meet their investment needs, rather than the FCA setting quality standards in stone
  • Our listing regime should be flexible enough for issuers and investors to be able to agree where additional shareholder engagement, overseen by the FCA, is appropriate for them.

The day a company goes public for the first time, is the day that they are announcing to the world that they are a success. They have made it onto the world stage. They get to take part in those famous opening ceremonies that makes even the most seasoned executive grin with excitement.

They have gone from an idea, through the start-up phase, obtained seed funding, found external investors, grown against all odds – faced off against dragons, incorporated the wisdom of experts and are now a success for all the world to see.

Importantly, the success of their company is no longer just for the benefit of the few. Their company is now serving a greater public purpose. They are able to access a wider range of capital. They are now accountable to a much larger audience.

Any person they meet – whether that be at their local high street shop or at an investor roadshow – can buy shares in their company – and share in every success they have from that moment forward. They have a responsibility to their investors in a way that they have not had before.

Today’s conference will no doubt focus on the busy ‘technical’ agenda in the primary markets space. The new legislation and new requirements announced, discussion on additional changes that are up for grabs– the drive for reform, the opening up of our markets and the move towards easier fund raising. But front and centre we are talking about successful companies, led by people who have worked hard and are now sharing that success with the general public; providing opportunities for investors and supporting the real economy.

These companies are now role models for all other companies still on the path to success. We need to think about how we build on their success to encourage more companies to list in the UK.

How do we encourage a collective sense of ownership towards making London right at the heart of global capital markets? How do we convince entrepreneurs and management teams that the UK is the place to list and then stay listed?

How do we provide a wide range of companies for shareholders to invest in? How do we create an environment that encourages investors to be excited in and be willing to support those companies?

How do we ensure that investors have choices while maintaining high standards. And, importantly for me, what’s the role of the regulator and what is the role of others in the wider financial ecosystem?

Primary Markets Reform and striving for market excellence

When the FCA first embarked on the Primary Markets Effectiveness Review, we did some soul searching – and asked the question – what is it that makes primary markets effective? How has that changed in the last 20, 30, possibly even 40 years? 

I previously spoke about many of our rules had not been touched since 1984…. They shared a birthday with the iconic Apple mac. The first home computer. And while we sit here with smart watches and TVs, and tablets not much bigger that the size of a Mr Men book, our rules have failed to keep pace. Our rules are starting to resemble a dinosaur – much like those chunky first home computers.

At that time, I set out our vision of reform – the subject of our July 2021 discussion paper. I talked about ensuring markets were open, accessible, transparent, trustworthy, world leading and innovative. While continuing to maintain high standards focussed on outcomes, ensuring accountability to shareholders and most importantly, serving the public interest.

That vision is now embedded in the FCA’s three-year strategy where we have committed to promoting competition, supporting innovation and positive change, strengthening the UK’s position in wholesale markets, while maintaining high standards. In short, we strive for market excellence.

For the first time, we’ve made clear we intend to hold ourselves accountable for achieving it against outcomes and performance metrics

What does all of this mean for listing?

What does it mean for all those successful companies, considering whether now is the time to take the plunge and go public? How do we encourage a vibrant new interest in the UK and in floating?

How does it affect the changing nature and needs of investors and shareholders? How does it help support resilience, recovery and growth in the face of a rising tide of geopolitical uncertainty and a broader economic downturn?

The discussion paper sets out our further thoughts on this vision and starts to answer those questions. We put forward one possible way that the listing regime could be reformed, via a single segment, and set out in more detail the four objectives we have sought to achieve to make our markets more effective.

Complexity only where it serves a purpose

Firstly, we want to ensure the value of being listed is simpler to understand, removing any complexities that aren’t serving a genuine and defined purpose.

Being listed is a big deal. Companies that have gone through the process are held to a higher standard. They are under intense scrutiny by both investors and the media. They have worked hard to get where they are. That needs to be recognised. 

The costs of being listed should better align to the benefits. Complexity adds to costs and makes the benefits harder to realise. We consider that putting forward one single segment, where all equity shares of commercial companies are listed, could achieve that simplicity. 

One single set of eligibility criteria for listing makes it clear that all listed companies have met that bar.  Being listed equals success. And importantly for investors, issuers can be compared.

Providing greater opportunities for success

Secondly, we want to make sure that success is more achievable to a wider range of companies. The concept of what a company needs to have done to be considered high quality is subjective and changes over time. 

Yet our Listing Rules set specific benchmarks that companies need to meet to be admitted to the official list. At the moment, the FCA sets the quality criteria. Most notably this involves proof of a three-year revenue track record, but also a requirement that revenue growth is representative of the business.

This means it is not only pre-revenue companies that are currently ineligible for listing, but high growth companies are also excluded or find it more difficult and costly to list.

These requirements seem more suitable to the days where widget makers were the successful companies of the day, rather than the capital hungry bio-techs, or hi-tech companies that measure success in a very different way. 

Empowering investors in their decision-making

This leads me to the third objective of our reforms – empowering investors to make decisions about the quality of companies. Or rather whether the companies are suitable for their investment needs. 

Blunt measures for success set in stone in rule books no longer seem appropriate for the age where data is at our fingertips.  They seem even less appropriate for the sophisticated and engaged institutional investors that make up a large proportion of the investor base in UK markets. 

We want to explore whether the prospectus disclosure regime could be used to give investors the tools they need to make those decisions.

HM Treasury have announced an intention to give the FCA extensive rule making powers over prospectuses. In the future, we will be able to consider, in more detail, whether current disclosures are enough to take the place of some of the areas currently covered by the listing regime or whether they need to be revised.

Most importantly, since leaving the EU, we will be able to have that conversation in one place. Rather than considering where our Listing Rules overlap or underlap with the EU Prospectus Regulation, that took many years to negotiate, agree and enact – we will be able to address those rules head on – making changes that best accommodate our markets.

We, as the securities regulator, will be empowered to act nimbly and with agility to bring about reforms more quickly, and be more flexible in how we approach issues as they arise. These are attributes we demonstrated when we moved to reflect some of the Hill Review changes quickly last year.

We will need to wait until Parliament have done their work legislating to give us those powers, but when they do, we will move quickly to discuss future regime changes with the market.  

A more flexible listing regime

Flexibility is the fourth objective that we consider our listing regime should be able to achieve. As a regulator I want flexibility, it seems only fair to try to create a regime that gives the same thing to both issuers and investors.

This is one area of our discussion paper that we know will bring out views from across the spectrum, and we welcome and encourage that debate. 

The structure we have put forward suggests that issuers will be able to opt into a supplementary set of continuing obligations, that the FCA will then supervise and enforce against.

This will sit alongside a set of mandatory continuing obligations that will be applicable to all issuers of equity shares in commercial companies. We know that this is innovative and different. 

The supplementary continuing obligations are not intended to reintroduce a two-tier market, like premium and standard, via the back door. They are not a new gold standard. All issuers will meet the same set of eligibility requirements. They will all have a UK listing. The supplementary regime should be exactly that – a supplement for those who it suits.

Our intention is to bring together those investors who enthusiastically exercise their stewardship obligations responsibly, and are an asset to well-run companies, with companies that are more nervous about how these obligations are exercised. To the point at which they choose to list in other jurisdictions to avoid them.

Our discussion paper puts forwards a way that companies could agree with their investors whether the additional requirements are appropriate for them. 

A very acquisitive company could make clear to potential and existing investors what its overarching strategy is and why individual shareholder approval of transactions would hold that up.

In contrast, investors would be able to make clear where they felt more accountability was needed and explain why the extra safeguards provided by the supplementary continuing obligations would make them more likely to support a company going public, possibly earlier than they otherwise would have done.

It is this attempt to open up listing to a wider range of companies that puts a spotlight on the sponsor regime. The intention is to provide a forum for discussion. We know that we may not have drawn the line at the right place quite yet. But this is the time to discuss the balance.

The sponsor regime

The second key area that our discussion paper seeks views on is the sponsor regime. 

A company going public has more advisers, accountants and lawyers than one cares to count. All representing cost – in both time and money for the company – and ultimately the investors who become shareholders once the company has successfully listed.

We recognise that the sponsor regime is relatively unique to the UK, although Hong Kong also has something similar at the gateway to listing. For the FCA, it’s the sponsor who performs the key role of assessing the ability of a company to meet our rules, not just when they list, but also at key junctions in their corporate life. 

Those moments are where investors need a spotlight on companies’ actions to better hold them to account. As the regulator, we value the guidance and advice that a sponsor provides to the company, as well as the expert opinions that they provide to us. We see them as being a key component of quality – a mainstay of investor protection.

Sponsors help to ensure that a company is supported and receives high-quality expert advice when they need it most. We consider that role has value to issuers, investors, and particularly to the FCA, a sentiment that was broadly supported by the majority of market participants when we asked the question in the summer of 2021.

However, there were differing views over what that value was and whether it was fully appreciated. If we widen access to listing to a broader range of companies, as suggested by the concept set out in our paper, it seems that that expert advice and support may become even more important, not less.

But only if the sponsor is truly seen as a benefit and not just a cost. Issuers and investors need to understand and value this role. 

It is easy to only see specific requirements that apply to listed companies as costs for the companies without thinking of the broader benefits to the wider public. I hope that our paper can drive forward both a greater understanding of the sponsor regime and the importance of where it sits in our proposed model.

Other changes: Diversity and inclusion & climate change reporting

As I said at the start, being listed is a mark of success. Listed companies are rightly held up as role models for all other companies.

That’s why, so often, our rules aim to leverage that role model status and affect a much broader array of companies than those directly within our regime. Both our new diversity and inclusion disclosure targets and the climate change reporting rules (TCFD) are examples of this.

Comply or explain regimes that ask listed companies to share with the market not just that they are meeting higher standards, but also how they have gone about doing it. 

Even where they don’t yet meet the standards, the ‘explain’ is just as important as the comply.  It sparks the conversation and drives progress on issues that are increasingly going to impact investment decisions going forwards.

If the largest energy producers in the world can make public their net zero commitments, then the smaller company in Glasgow should be able to move in the right direction too. 

All companies gain from seeing the success that being more sustainable and being more diverse brings to listed companies.

A successful company isn’t just public, its aware of its sustainability commitments and has a board and management team that demonstrate diversity of thought and experiences that challenges groupthink and hopefully make for better run businesses.

If climate and other sustainability factors are financially material, affecting the long-term value of companies, then transparency on progress remains crucial to ensuring the integrity of public markets.

Making our financial ecosystem more agile and nimble

This is an exciting time for primary markets regulation, and financial services regulation more generally as we look to take advantage of being able to be more agile and nimble, with greater regulatory open mindedness.  

There is so much going on in this space, it truly feels like a unique opportunity. As a regulator, the ambition to make change is there. It means we are going to be more willing to put out ideas like the possibility of a single listing segment in the Primary Markets Effectiveness Review.

We really are seeking views and want to change and adopt our ideas to better meet the objectives we have outlined, based on the opinions of others. This is an open and honest discussion and a key inflection point in the wider primary markets reform. We want constructive feedback and engagement on how we can make reforms work better together. We are listening, because the task is significant.

It can’t just be about the regulator and it isn’t simply about the rules – we need to honestly reflect on the current position in the UK markets. Any conversation needs to think about where else change might be necessary and how this can be made. Particularly if we are to strive for the position I argued for right at the start – market excellence.

I look forward to engaging with you as we embark on this broad agenda of reform to achieve a shared vision of what market excellence means in the UK.

Source: FCA

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