The UK will permit founders to retain more voting rights in companies seeking to list on the top tier of London’s stock market, under new proposals to lure leading tech groups.
The Financial Conduct Authority on Monday laid out plans to reform rules for company listings and allow more dual class shareholdings, which give certain shareholders greater voting rights than others. The watchdog is aiming to reverse a long-term decline in listings and help London compete with thriving overseas centres such as New York, Hong Kong and Shanghai.
The moves build on the recommendations of reports this year into the UK fintech sector, by former Worldpay chief executive Ron Kalifa, and the listings regime by Lord Jonathan Hill, former EU financial services commissioner, which both advocated reforms to support and encourage technology companies in Britain — an area prioritised by chancellor Rishi Sunak as part of the City’s future post-Brexit.
The FCA proposed that founders who remain executives and other directors be allowed 20 votes per share on votes to prevent their own removal as directors and to act as a deterrent to unwanted takeovers of the company. This would allow them to control 50 per cent of the voting power while holding just 5 per cent of the total shares, for up to five years. They would relinquish the right if they were no longer directors.
Dual class structures that give certain shareholders greater voting rights than others are common on other markets, particularly in New York, but have been controversial among some UK fund managers who worry about governance standards and argue that share ownership should be based on the principle of “one share, one vote”.
In March, investor concern about Deliveroo’s dual share structure was among factors that hit the food delivery company’s IPO. Its shares lost a quarter of their value on the opening day in what was dubbed “the worst IPO in London’s history” by one of its bankers.
The FCA also proposed cutting the minimum amount of shares to be offered to the public in a listing from 25 per cent to 10 per cent, lower than the 15 per cent threshold Lord Hill had recommended.
The watchdog also wants the minimum market capitalisation for new companies lifted to £50m compared to the previous level of £700,000. Smaller companies would be better supported on specialist growth markets such as Aim and the Aquis Growth Market, rather than the main market, the FCA said.
Delphine Currie, a partner at Reed Smith, the law firm, described the increase in the market cap barrier as “particularly dramatic”.
“The FCA should have looked to raise the threshold in stages as we now risk seeing those companies with a market cap of less than £50m being excluded from a primary listing,” she said.
“While any changes that make the London market more competitive are welcome, many of these proposed reforms may come too late in the day and may be detrimental.”
Authorities are keen to reverse the long-term decline in companies listing on UK stock markets. The number of listed companies in the UK has fallen by about 40 per cent compared to 2008, according to Lord Hill’s listings review, while the UK accounted for only 5 per cent of IPOs globally between 2015-2020. Even so, more than £27bn was raised on the LSE in the first half of the year, its highest total since 2014.
Julia Hoggett, chief executive of the London Stock Exchange, had backed reforms and called the consultation “a positive step”. The FCA will consult over the summer and aims to have the rules in place by the end of the year.
