A Treasury-backed city review called for an overhaul of company listing rules so London can better compete with rivals in New York and Europe and take a share of the booming acquisition vehicle market special purchases.
The review, which will be published on Wednesday, also proposes to allow dual class shares to give founders greater control over their operations and attract a wave of tech companies to the London market.
The city’s attractiveness has stumbled in recent years as the United States and Hong Kong swept the majority of in-demand tech lists. New York markets were further inflated this year by a wave of so-called Spacs, who raise funds from investors and are publicly traded, then seek out an acquisition target to go public. Britain’s advantage has also been eroded by loss of business activities to European rivals since Brexit.
Chancellor Rishi Sunak, who commissioned the independent report, said the government was determined to improve the UK’s reputation after leaving the EU, “by ensuring that we continue to be the world leader in providing open and dynamic capital markets to existing and innovative companies ”.
The review, which was carried out by Lord Jonathan Hill, the EU’s former financial services commissioner, recommended a wide range of reforms to relax the rules that have tightly governed lists in the UK.
Lord Hill has recommended lowering the free float limit for publicly held shares to 15% – which means founders have to sell fewer publicly traded shares – and wants to “empower retail investors” by helping them to participate in capital raising.
He also proposed to “completely rethink” company prospectuses to reduce regulation and encourage capital raising, and suggested renaming the standard listing segment of the LSE to increase its appeal. The chancellor is also expected to produce an annual “state of the city” report.
The government has said it will review the recommendations – many of which require consultation from the Financial Conduct Authority.
Lord Hill also recommended that the FCA be tasked with maintaining the attractiveness of the UK as a place to do business as a regulatory objective.
The FCA has said it intends to release a consultation document by the summer, with new rules expected by the end of 2021.
Lord Hill said the proposals were designed to ‘encourage investment in UK businesses [and] support the development of innovative growth sectors such as technology and life sciences ”.
He said the UK should use its post-Brexit capacity to set its own rules “to act faster, in a more flexible and targeted manner”, especially for growth sectors such as fintech and green finance .
However, the recommendations will raise concerns among some institutional investors who have argued that relaxing the rules on dual-class stocks, for example, would risk lowering corporate governance standards.
The review indicated that London needs to maintain high standards of governance, with various recommended methods to mitigate risks. Regarding double shares, for example, he recommended guarantees such as a five-year limit.
Amid fears the government could go too far with a desire for deregulation, Lord Hill said his proposals were “not aimed at opening a wedge between us and other world centers by proposing sweeping new starts in an attempt to capture competitive advantage. . . it is a question of filling a gap which has already opened ”.
Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by modifying the liability regime and improving the efficiency of the listing process.
The inclusion of a recommendation to help Spacs list in London by no longer suspending stocks after a target is selected will be welcomed by many investors.
However, the rapid growth of these vehicles laden with billions of dollars in speculative cash has also raised concerns about a bubble forming on the market.
Lord Hill said there was a risk that the UK would lose “local and strategically important businesses coming to the London market” from overseas Spacs.
The UK has lagged behind New York and Hong Kong in attracting the types of companies in industries, such as tech and life sciences, that dominate modern economies and attract equity-seeking investors. growth.
London has only accounted for 5 percent of global IPOs over the past five years, while the number of UK-listed companies has fallen by around 40 percent since 2008. The review also pointed out that the most important companies listed in London were either financial. or representative of the “old economy” rather than the “companies of the future”.
Lord Hill referred to the flow of post-Brexit business to Amsterdam to argue that the UK faces “stiff competition as a financial center not only from the US and Asia, but elsewhere in Europe. “.
These steps represent a victory for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between competitiveness and maintaining high standards of corporate governance.