LONDON (Reuters) – The UK is set to modernize its listing rules to attract higher-growth SPAC companies to London, Treasury Secretary Rishi Sunak said after a government-backed review that the capital was on the decline after Brexit.
FILE PHOTO: Pedestrians pass the London Stock Exchange in London, Britain, Aug. 15, 2017. REUTERS / Neil Hall
The London Stock Exchange has faced tougher competition from NYSE and Nasdaq in New York and Euronext in Amsterdam since the UK left the European Union entirely on December 31st.
In order to keep London globally competitive after Brexit, Sunak commissioned a review of the listing rules last November. It was chaired by former European Commissioner Jonathan Hill and published its recommendations on Wednesday.
“The review has done more and I am keen that we move quickly to the recommendations and cement the UK’s reputation at the forefront of global financial services,” Sunak said in a statement.
The Financial Conduct Authority will publicly consult the proposed changes, although some would require legislation to implement.
The government is under pressure to act – it announced a quick fintech work visa last week – after many euro and swap deals left London for Amsterdam and New York following full Brexit in December.
However, asset managers and corporate executives warn against undermining corporate governance standards by simplifying listing rules.
Hill said: “The composition of the FTSE index highlights another challenge: the top London-listed companies are either financially or more representative of the ‘old economy’ than the companies of the future.
He added that there was a feeling that the financial sector was “on the back foot” due to Brexit and new competition from Amsterdam.
“The recommendations in this report are not about bridging the gap between us and other global centers by suggesting radical new exits for a competitive advantage,” said Hill.
“It’s about filling a gap that has already opened. All recommendations are consistent with existing practices in other well-regulated financial centers in the US, Asia and Europe, ”added Hill.
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Two changes aim to bring London in line with New York and other financial centers by allowing founders to list their business while staying in control.
Hill recommends allowing the stock structures of two classes to give directors and founders better voting rights on certain decisions for five years. According to the retail investor principle, this contradicts the “one share, one vote” principle. The minimum free float or amount of shares in a company or in public hands would be reduced from 25% to 15%.
Hill also recommends liberalizing the listing rules for special purpose vehicles, or SPACs, whose New York IPOs have skyrocketed over the past year, with Amsterdam gaining some lately too.
The prospectus used by companies to represent their initial or second offering of stocks should also be thoroughly reviewed to make listing a company quicker and easier, Hill recommended.
According to Hill, regulators in Australia, Singapore, Hong Kong, Japan and the EU are all aiming to keep their financial sectors competitive and that would also help the UK Financial Regulator.
There should also be an annual report from the Minister of Finance to Parliament on the competitive position of the financial sector.
“The advancement of the UK listing regime is the key to flexibility for companies that want to list in London while maintaining high standards of corporate governance,” said David Schwimmer, CEO of the LSE Group.
Reporting by Huw Jones; Adaptation by David Evans and Louise Heavens