In a new consultation paper published today, the Financial Services Authority – in its guise as the UK Listing Authority – has announced that it is consulting on:
- changes to the free float requirements for both the premium and standard listing segments on the Main Market; and
- introducing a new controlling shareholder concept.
This follows the FSA’s earlier consultation in January 2012 on the premium listing regime, which we discussed here and which covered reverse takeovers, the sponsor regime and externally managed companies. Today’s paper covers the feedback on that January 2012 consultation and the resulting final rules.
As the FSA remarks in its press release today, the changes come “amid market debate on the issues of free float, minority shareholder protection, corporate governance and the IPO market in general”. See Bumi, ENRC, Resolution and so on. The consultation should also be seen within the context of the Government’s rather vague suggestions, made a fortnight ago, that the listing regime be relaxed to encourage high-growth and in particular tech companies to IPO on London. We covered those suggestions here.
Here is the FSA’s summary of the amendments to the listing regime that it proposed today:
“Free float provisions
The free float requirements are set at an EU level and allow the FSA to consider a free float of below 25% if there is sufficient liquidity. The amount of shares in public hands potentially plays a role in giving shareholders sufficient power to counterbalance a dominant shareholder. However, the FSA does not believe that an increase in the free float requirement is a proportionate way to address the governance issues that have been raised in this context. The FSA proposes:
- detailing the circumstances where we might consider modifying the 25% free-float requirement for premium listings, indicating that any modification beneath 20% would be unlikely; and
- removing the requirement for a minimum absolute percentage free float within the standard segment, provided that sufficient liquidity is present.
Corporate Governance
The FSA proposes to further strengthen the Listing Regime by adopting greater corporate governance requirements for companies with a dominant shareholder. The FSA will increase the tools available to independent shareholders to influence the governance of the companies in which they have invested. These proposals include:
- introducing the concept of a ‘controlling shareholder’;
- requiring an agreement is put in place to regulate the relationship between such a shareholder and the listed company;
- and ensuring that this agreement is complied with on an ongoing basis. This will ensure that the company is managed independently from that shareholder.
The FSA also recognises the important role that the independent directors play in these circumstances. Therefore it will also insist on a majority of independent directors on the board where a controlling shareholder exists and introduce a new dual voting procedure to allow independent shareholders to have more say in their appointment.
At the same time the FSA is making clear that certain types of company are incompatible with a premium listing including those with voting arrangements that have the potential to subvert or circumvent the investor protections that the premium listing provides.”
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