Introduction

The government-commissioned UK Listing Review (the Review), published on 3 March 2021, has recommended significant changes to both the UK listing regime and the UK prospectus regime. The changes proposed by the Review are designed to strengthen the UK's position as a world-leading financial centre and to ensure that the UK remains one of the most attractive places to grow and list successful innovative companies.

Background to the Review

The Chancellor of the Exchequer launched the review process in November 2020 against the background of the UK gaining full responsibility for its financial services rulebook from 1 January 2021 and the desire to boost the UK as a destination for IPOs and optimise the capital-raising process for companies seeking to list on the main UK markets.

The review taskforce, chaired by Lord Hill, was charged with seeking input and evidence from market participants and, based on its findings, proposing a range of recommendations, both legislative and non-legislative. In developing those recommendations, the review taskforce was required to pay the highest regard to the UK's existing reputation for high standards of corporate governance, shareholders' rights and transparency.

Responses to the call for evidence, which formed the basis of the Review recommendations, highlighted clearly that "everyone to whom [the taskforce has] talked – investors, advisers, regulators, banks, companies considering listing – thinks that there is a need for change and reform".

The Review's recommendations

A theme of the Review is that regulation to maintain competitiveness is a dynamic process. The Review's overarching recommendation is therefore that the Chancellor should present an annual report setting out the steps that have been taken or are being taken to promote the attractiveness of the UK as a well-regulated global financial centre. Allied to this, the Review suggests that HM Treasury should consider charging the Financial Conduct Authority (FCA) in its operating objectives with a duty to take into account the UK’s attractiveness as a place to do business.

In terms of its more detailed recommendations, the proposals in the Review are guided by a number of principles – increased flexibility, simplifying and speeding up processes, avoiding ever more detailed prescription and increasing choice where possible – while at the same time ensuring appropriate safeguards.

The key recommendations of the Review are set out below.

1. Improving the environment for companies to go public in London

This aspect of the Review includes a number of proposals.

Rebranding and remarketing the Standard Listing segment of the Listing Rules: The Standard Listing segment should be promoted as a venue for companies of all types to list in London. The key feature of the newly branded segment should be emphasised as being its flexibility. Specific proposals include renaming a standard listing as a "Chapter 14" or "Main Segment" listing and encouraging investor groups to develop guidelines that would allow for companies on this segment to be index-eligible.

Permitting companies with dual class share structures on the Premium Listing segment of the Listing Rules: This change would address, in particular, the concerns of founder-led companies looking to float but concerned by potential loss of control. In order to maintain high corporate governance standards, certain conditions would need to be applied. These would include, for example, a maximum duration of five years and a maximum weighted voting ratio of 20:1.

Reassessing free float requirements to provide a better measure of liquidity at and following listing: The Review suggests reducing the IPO free float requirement from 25% to 15% and allowing companies more choice to use measures of liquidity other than an absolute free float percentage.

Easing of restrictions on Special Purpose Acquisition Companies (SPACs): Currently the Listing Rules can require trading to be suspended in the shares of SPACs on announcement of a potential acquisition. This is a key deterrent for potential investors in UK SPACs and has discouraged the development of SPACs in the UK. The Review recommends that the FCA remove the rebuttable presumption of suspension and replace it with appropriate rules and guidance to increase investor confidence in SPACs.

2. Redesigning the prospectus regime

HM Treasury should conduct a fundamental review of the prospectus regime so that it fits better with both the breadth and maturity of the UK capital markets and the evolution in the types of business coming to market. This review should at a minimum address:

• the separation of requirements in relation to admission to listing and public offerings;
• changing how the prospectus exemptions function;
• the use of alternative listing documentation whether appropriate and possible (for example, where an existing listed issuer makes a further issue); and
• whether prospectuses drawn up under other jurisdictions' rules can be used to meet UK requirements.

3. Tailoring information to meet investor needs better

The proposals in this section of the Review are aimed at reducing some of the challenges faced by companies, particularly those which are high growth and/or have grown through significant acquisitions, in meeting the requirements for the premium listing segment. They include:

• amending the liability regime to facilitate the provision of forward-looking information in prospectuses;
• reviewing the provisions for scientific research-based companies regarding revenue earning requirements to broaden their application to a wider range of high growth innovative companies across a variety of sectors; and
• amending the requirement for historical financial information covering 75% of an issuer's business so it is only applicable to the most recent financial period.

4. Empowering retail investors and improving capital raising for existing listed issuers

The Review acknowledges that there is a new generation of retail investors who will expect smoother processes for registering their views as shareholders. It therefore recommends that the government consider what technology can be used to improve retail investor involvement in corporate actions and stewardship.

As regards the efficiency of further capital raisings by listed issuers, the Review makes several suggestions with a view to facilitating a quicker and more efficient process and more easily involving retail investors. These include re-establishing the Rights Issue Review Group, considering capital-raising models used in other jurisdictions and taking advantage of technological advances.

5. Improving the efficiency of the listing process

The perceived speed and certainty of pricing with which a company can float can be an important factor in deciding where to float. The Review therefore suggests that the FCA reviews the recently introduced conduct of business rules in its Handbook that relate to the inclusion of unconnected research analysts in an IPO process. These, in practice, mean an extra seven days have been added to the public phase of the process.

6. The wider financial ecosystem

The Review cites several other elements that were mentioned by those who responded to the call for evidence. These include unlocking pension investment, creating a competitive tax environment and enhancing SME research provision. The Review does not include detailed recommendations in relation to these, but it recommends that HM Treasury consider their respective merits and act on them as appropriate in the context of reviewing the wider financial ecosytem in the UK.

Next steps

Among market participants who responded to the call for evidence, there was an overwhelming sentiment that the UK government is right to be looking at the UK's competitive position and whether the current listing and prospectus regimes remain fit for purpose. The Review has embraced that spirit and set out a road-map for dealing with the issues identified.

The government will now examine the Review’s recommendations closely and set out its next steps.

Many of the recommendations, including changes to the listings regime, will require consultations by the FCA. Where appropriate, the FCA aims to publish a consultation paper by summer 2021, with the relevant rule changes to be incorporated by late 2021 (subject to consultation feedback and board approval). The FCA also supports the proposal for a fundamental review of the legislative framework for the prospectus regime and will work closely with the government and market participants to discuss and develop policy options.