The FCA has advanced its reform of the UK listing regime for equity shares with the publication of a further consultation paper setting out its detailed proposals for reform, including the likely timetable and first tranche of the proposed new UK Listing Rules sourcebook.

The latest consultation paper, Detailed proposals for listing rules reforms (CP 23/31) (the December Consultation Paper), takes forward the blueprint outlined by the FCA in its May 2023 consultation to streamline and enhance the competitiveness of the UK listing regime for equity shares.¹

Overview

The December Consultation Paper maintains the FCA's broad approach to reform outlined in the May 2023 consultation, namely:

• replacing the current premium and standard listing segments with a new "commercial companies" category for equity shares, with reduced eligibility criteria and a simplified continuing obligations regime (compared to current premium listing requirements); and
• moving to a more permissive, disclosure-based regime with reduced regulatory intervention.

The FCA's detailed proposals have been calibrated to balance flexibility and accessibility for issuers, with safeguards to preserve market integrity and support investors' decision-making, both at initial public offering and once listed. They take into account responses to the May 2023 consultation and more general market engagement undertaken by the FCA.

Timetable

The FCA is working to an accelerated reform timetable and expects the new regime to go live early in the second half of 2024. The current consultation period will close on 22 March 2024, including for comments on the currently unpublished second tranche of the new UK Listing Rules sourcebook (see below). The FCA aims to publish its policy position and the final new UK Listing Rules sourcebook at the start of the second half of 2024, with two weeks between publication of the final rules and implementation.

Ahead of this, the FCA intends to implement new rules on sponsor competence. The consultation on this aspect will close on 16 February.

Draft new UK Listing Rules sourcebook

The FCA is proposing to replace the current Listing Rules with a new UK Listing Rules sourcebook.

Appendices 1 and 2 of the December Consultation Paper set out the first tranche of this new sourcebook, mainly covering the core requirements for the new commercial companies category and sponsor competency.

The FCA will publish the second tranche during the first quarter of 2024. This will include the proposed rules for issuers not falling within the commercial companies listing category.

Points to note on the new commercial companies listing category

Eligibility: In line with the proposals set out in the May 2023 consultation, the current financial criteria, which include a three-year financial and revenue earning track record and an unqualified working capital statement, will be removed.

Initial and continuing obligations – independence and control: The FCA confirms that it is not proposing to mandate eligibility requirements and continuing obligations around independence and control of business, other than where a controlling shareholder is present and in relation to externally managed companies.

Initial and continuing obligations – controlling shareholder regime: In a change from the approach in the May 2023 consultation, the existing requirement for a written relationship agreement with a controlling shareholder will be retained and not be replaced by a comply-or-explain approach.

Initial and continuing obligations – dual class share structures: The FCA has moved away from its May 2023 proposal for a 10-year time limit after which enhanced voting rights are removed and is not proposing any time-related sunset requirement. Additionally, it is now proposed that a wider range of persons will be able to participate in dual class structures, including natural persons who are shareholders and employees. However, there will be fewer matters on which the holders of weighted shares can vote than was proposed in the May 2023 consultation.

Continuing obligations – significant transactions: The December 2023 Consultation Paper confirms that, as proposed in the May 2023 consultation, a Class 1 transaction (i.e. at the ≥25% threshold), other than a reverse takeover, will no longer require shareholder approval (or related sponsor involvement) but will require market notification. Class 2 transactions will no longer exist as a concept. Additionally, the December 2023 Consultation Paper proposes enhanced disclosures in market notifications, including financial information (but not mandating a working capital statement or restated historical financial information).

Continuing obligations – related party transactions: The December 2023 Consultation Paper confirms that, as proposed in the May 2023 consultation, related party transactions will not require shareholder approval but will require market notification, a sponsor fair and reasonable opinion at the ≥5% threshold, and board approval. However, it diverges from the May consultation in that it does not propose that sponsor guidance will be required when a commercial company proposes to enter a transaction that may be a related party transaction.

Issuers not falling within the commercial companies listing category

Sovereign-controlled commercial companies: The FCA confirms that it will not carry forward a category for sovereign-controlled commercial companies but will instead provide certain modifications for such companies within the commercial companies category.

Closed-ended investment funds: The FCA will carry forward a separate category of closed-ended investment funds in the new UKLR sourcebook. These will broadly retain the current Listing Rule 15 eligibility and continuing obligations provisions, but with some changes.

SPACs and shell companies: The FCA will create a new listing category for SPACs and other shell companies, to be called the "shell companies category". This category will be broadly based on the current standard listing requirements (Listing Rule 14) but with tailored modifications and additions, including the extension of the sponsor regime to it.

Other shares: Having considered feedback, the FCA is no longer proposing the "other shares" category suggested in the May 2023 consultation. Instead, it is proposing three new categories to reflect the different issuer and share types currently listed under the standard listing shares category.

• Transition category for existing standard listed issuers of equity shares in commercial companies: This will maintain the status quo for existing commercial companies that are issuers of standard listed shares and for whom this is their only or primary equity listing. This category will be closed to new applicants and to transfers from other categories. Issuers in the transition category will be able to apply to transfer to the commercial companies category (with its enhanced requirements) when they are ready to do so using a modified transfer process.
• Secondary listing category for commercial company shares in overseas companies: The FCA has concluded that a separate category will be clearer and more transparent than including issuers with a primary listing outside the UK within a modified version of the main commercial companies category. Unlike the transition category, the secondary listing category will be open to new applicants. Eligibility and continuing obligations will largely replicate Listing Rule 14 with some additional requirements (but the sponsor regime will not apply to this category).
• Non-equity shares and non-voting equity shares category: The status quo for these issuers will be maintained based on current Listing Rule 14 eligibility requirements and continuing obligations. This category will be open to new applicants.

Retained standard listing categories: The existing standard listing categories addressing open-ended investment companies (current Listing Rule 16A) and other non-equity categories (current Listing Rules 17-20) will be retained in the new UKLR sourcebook.

Implementation arrangements

As part of the implementation of the new regime, the FCA will map existing issuers' existing listings to the appropriate new categories once the new regime goes live. This means that:

• existing premium listed commercial companies will be automatically mapped to the new commercial companies category; and
• existing standard listed commercial companies will be automatically mapped to the new transition category.

The proposed mapping will be communicated to issuers before the new rules come into force, with issuers who think they have been incorrectly allocated having a four-week period to respond and discuss with the FCA.

The FCA is proposing to apply the new transactions requirements (replacing premium listing requirements) and related sponsor services with immediate effect from the day on which the new UK Listing Rules sourcebook takes effect.

There will be transitional arrangements for in-flight listing applications and mid-flight transactions.

1. See https://www.dentons.com/en/insights/alerts/2023/may/10/the-uk-listing-regime-change-ahead-for-commercial-companies for more information on the May 2023 consultation. ↩