The government has published an initial consultation on implementing a precautionary power to block listings on national security grounds. The power is intended to complement existing sanctions powers and the existing anti-money laundering framework.

Background

The publication of the consultation follows concerns about the possible links between a listing and national security. In November 2020, the government announced its intention to take a precautionary power to block listings on national security grounds and undertook to consult on its proposal.

Approach

The consultation makes clear that the proposed power is intended to be a targeted power that will have minimal impact on the listing or admissions process. In designing the proposed power, the government will be guided by the following principles:

• enhancing the integrity of, and confidence in, UK markets by protecting them against potential risks to national security;
• upholding the status of the UK as a global listing centre;
• exercising proportionality and ensuring transparency to avoid additional burdens on companies over the course of their listing or admission; and,
• ensuring the power is narrowly focused on national security grounds.

The government anticipates that the proposed power will only be used in a very small number of remote cases. The type of risk that the power to block might address is illustrated in the consultation with the following scenario:

Company A is an energy and technology company based in Country A. Country A was recently under UN sanctions for its nuclear programme and these were lifted only recently. Country A’s Energy Minister partly owns Company A. Proceeds from the listing will be used to further Country A’s nuclear weapon capability and enable Country A to accelerate its nuclear weapons programme.

The circumstances and rationale for intervention will be covered more extensively in a future consultation.

Scope

The proposed power will cover all initial equity listings and admissions on the Main Market of the London Stock Exchange and AIM and all other UK public markets, but not secondary trading. Convertible securities will be within scope, but it is not the government’s intention to include non-convertible listed debt securities (though it is seeking views on whether this exclusion is appropriate).

Requirements for issuers

In order to align with the existing listing (or admission) process and require minimal additional action from prospective issuers, the government is considering an approach which will require companies to make additional disclosures for the purposes of the national security screening regime. The suggested disclosures fall into the following categories:

• information about the issuer;
• business overview;
• management;
• major shareholders;
• the offer.

The government anticipates that in many cases, and in particular where there is a requirement for an issuer to produce a prospectus, the relevant disclosures will already be required as part of the listing or admission process. The government is inviting views on the scope, method and timing of the disclosures. It is also proposing a pre-clearance process for companies that might wish to seek assurance on the government’s national security screening power before they choose to list in the UK.

Next steps

The current consultation closes on 27 August 2021. The government will subsequently bring forward a formal response. It expects further technical consultations to be necessary as the power is developed.