In an effort to encourage more businesses to list shares on UK stock markets, the UK’s financial watchdog has revealed proposals to change some of its regulations.
It follows the decision by British IT company Arm and other companies to list in the US rather than the UK.
The Financial Conduct Authority (FCA) said that by streamlining laws, the UK will become “more competitive” in relation to overseas stock markets.
However, some worry that the modifications may weaken the interests of shareholders.
Concerns regarding the desirability of the UK stock markets were raised by Arm’s plan to list in the US.
The semiconductor design company, based in Cambridge, apparently wants to raise up to $10 billion (£8 billion).
Hermann Hauser, who invented Arm’s technology while working at Acorn Computers, said this week to the BBC that Brexit had damaged the UK’s reputation as a place to do business and that the New York stock exchange was “much deeper” than London’s.
The FCA is proposing to do away with the need for shareholders to vote on transactions like acquisitions and to replace two listing categories with a single one.
However, he went on to say that investors would face greater risk and would need to “get to know companies better” before making an investment.
Although the UK has long been the largest financial centre in Europe, a government investigation has found that since 2008, the number of listings in the nation has decreased by 40%.
Redesigning the listing requirements also follows Microsoft’s CEO’s criticism of the UK following the company’s inability to complete its acquisition of Activision, a US video game company.
The government’s intention to implement “light-touch” regulations in the field of science and technology after Brexit, along with the decision of corporations to list overseas and the takeover of British firms by foreign companies, have all contributed to concerns about the UK’s competitiveness.
A corporation becomes public when it is listed on a stock exchange, allowing investors to purchase and sell shares on designated markets. Companies typically list on stock exchanges to increase their investor base.
The FCA stated that it aimed to make the regulations that businesses must go by in order to be permitted to list their shares in the UK “more effective, easier to understand, and more competitive”.
It acknowledged that some people considered the current laws to be “too complicated and onerous,” but it also pointed out that companies make decisions about whether to list based on more than just regulations, including taxation and investment opportunities.
One category and set of qualifications will replace the current “standard” and “premium” listing categories as part of the modifications.
Currently, companies who want to list shares on any of the FTSE indexes—which include some of the biggest international corporations—must maintain a premium listing, adhere to the strictest regulations in the UK, and pay hefty fees.
In an effort to lower obstacles to businesses executing their business goals, the FCA has also suggested doing away with the requirement for shareholder votes on transactions like mergers.
Reform of rules
Although most investment groups applauded the ideas, there were concerns expressed that they may weaken market norms and diminish the rights of owners.
Although “strongly” supporting the concepts of revising the listing regulations, Interactive Investor CEO Richard Wilson stated that “eroding shareholder rights risks undermining market standards, and this is not the right answer.”
The removal of required shareholder votes on transactions, he cautioned, was a “major red flag”.
Head of government affairs and public policy at investing firm Hargreaves Lansdown, Anne Fairweather, called the FCA’s decision “welcome,” but she also noted that the effects of taking away some investors’ rights needed to be taken into account.
“A focus on disclosure and engagement of investors, rather than reems of paper in a prospectus which aren’t read, is welcome,” she stated.
The measures are a “important step forward” in enhancing the UK’s international competitiveness, according to Andrew Griffith, Economic Secretary to the Treasury.
“We are the largest financial centre outside the US but we recognise that companies and investors have a choice and it is important our rule book keeps pace with practices elsewhere whilst still benefiting from the high-quality reputation of our markets,” he stated.