FCA under fire from investors over listings reform
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Seven large pension funds led by Railpen have written to the Financial Conduct Authority criticising the planned relaxation of listing rules for companies.
Planned changes to the rules under which companies can list in the UK and what they need shareholder approval for are expected to be finalised soon despite an anticipated change of government on 4 July, after the FCA consulted in December last year. They will be “the most wide-ranging and consequential reforms to the UK's capital markets in over three decades”, according to the FCA’s director of market oversight Clare Cole.
Major pension funds have now written to the chair of the FCA, Ashley Alder, to express their concerns about the proposals, accusing the watchdog of ignoring both market participants and the evidence for the stated aim of making the UK market more accessible, effective, and competitive.
“Neither the evidence base, nor the views of investors – a necessary ingredient for thriving capital markets – nor the impact on savers have been taken into account,” the pension funds write.
Instead of making the UK financial marketplace more attractive, it will deter investors from wanting to allocate capital here, they say.
The letter follows a similar one sent by the International Corporate Governance Network and other associations last week.
The pension fund signatories to the letter published on Friday are:
Caroline Escott, chair of the Asset Owner Council UK Corporate Governance Group and acting head of sustainable ownership at Railpen;
Robert Branagh, chief executive of the London Pensions Fund Authority;
Adam Matthews, chief responsible investment officer for the Church of England Pensions Board;
Dan Mikulskis, chief investment officer at the People’s Partnership;
David Murphy, chief executive of the Northern Ireland Local Government Officers’ Superannuation Committee;
Cllr Andrew Thornton, chair of the West Yorkshire Pension Fund; and
Faith Ward, chief responsible investment officer at Brunel Pension Partnership
The letter can be read in full here:
What are the listings reforms?
Among others, the FCA plans to introduce a “simpler, more disclosure-based listing regime” with a single commercial company category instead of standard and premium listings. The reforms would also mean companies will not need shareholder approval for some transactions.
The relaxation of listing rules creates extra work for investors In its original consultation, the FCA acknowledge this saying: “We recognise the proposed approach would place a greater onus on investors to carry out due diligence on companies before investing and on shareholders to secure sufficient engagement with companies on key transactions.”
There could be a risk for minority shareholders that companies pursue deals they do not support “and that could lead to a loss in value of the company and their investment”, it admitted.
Despite suggesting a greater risk of loss, the FCA argued this was acceptable because “most institutional investors already invest in other markets where this is the normal arrangement” and that many already undertake this type of due diligence on prospective UK listed companies as part of their standard investment processes.
“We do recognise that smaller investors may have less influence,” it added.
The regulator states that without FCA rules requiring companies to seek shareholder approval for transactions, “there may be greater reliance on engagement such as annual general meetings (AGMs) to express concerns (most likely after a transaction has concluded), or through divestment”.
