Railpen laments ‘opportunity lost’ as FCA unveils listings overhaul

The FCA’s new rulebook represents what it calls “the biggest changes to the listing regime in over three decades”.

Changes include a removal of the need for “significant or related party transactions” to be put to a shareholder vote, something that Railpen has warned could dilute shareholder rights and protections. The Pensions and Lifetime Savings Association has previously called this voting right “a vital protection for investors”.

Companies will still require shareholders to approve key events such as reverse takeovers and removing shares from an exchange, and the rules have also introduced “flexibility around enhanced voting rights”.

Railpen – which has been lobbying the regulator along with other pension funds on behalf of institutional investors – said the new rules were a missed opportunity.

Caroline Escott, acting head of sustainable ownership at Railpen, said: “UK pension schemes naturally want thriving UK capital markets. As such, we are deeply disappointed with the final UK listing rules and feel an opportunity has been lost to truly make UK capital markets an environment where all the parties necessary to creating long-term value can cooperate and have a voice.

“We presented compelling evidence in support of the benefits of robust investor protections, both to the UK as a global financial centre, and to outcomes for everyday savers. It is a shame that this evidence, and the widely held concerns of investors and consumer representatives, have not been heeded.”

Investor pushback

Railpen has led the institutional investor responses and lobbying efforts around the FCA’s rule changes since the regulator set out its plans in a consultation paper last year.

In a public letter to the FCA last year, Railpen and several other major pension schemes warned: “Diluting these important shareholder rights mean that investors would find it more challenging to act as effective stewards of their assets.

“It would also diminish the UK’s reputation and attractiveness as the world’s ‘quality’ market, and its role as a beacon for high corporate governance standards and robust investor protections.”

The pension schemes also argued that the changes would “amplify the current challenges as well as leading to worse outcomes for our members”.

In its policy statement, the FCA said UK-listed companies would still be subject to strong oversight and disclosure rules, including a requirement to notify the market whenever a related party transaction exceeds 5% of the company’s market capitalisation.

“We consider these proposals offer the right balance to continue to support engagement between the company and its shareholders and to enhance market transparency,” the FCA said.

Dual class shares

There were some elements of the FCA’s reforms that Railpen welcomed, in particular in relation to dual class share structures.

This refers to companies with multiple types of shares in issuance with different voting rights assigned to each. Major technology companies such as US-listed Alphabet and Meta have such structures.

The FCA now requires companies with dual class shares to clearly disclose the voting rights for each type of share. The new rules also include restrictions on the transfer of voting rights and a 10-year sunset clause, reflecting studies that show the positive effects of dual share class structures diminish over time.

“We are pleased the FCA is open to our suggestion of class-by-class vote disclosure at companies with dual-class share structures,” Escott said.

“This information would be useful to boards and investors in helping them understand the independent shareholder perspective on material issues. The methodology for doing so will need to be carefully considered, and we look forward to working with the FCA and others on this.”

Escott concluded: “Railpen is purely motivated by our purpose to secure our members’ future. We will continue our work with portfolio companies and policymakers to achieve the long-term value creation our members need for a secure and stable retirement.”

What the FCA said

The FCA said its rules overhaul “better aligns the UK’s regime with international market standards”, and maintained that investor protections and access to information remained secure.

It acknowledged that the regime allowed greater risks, but said it believed the changes would “better reflect the risk appetite the economy needs to achieve growth”.

Sarah Pritchard, the FCA’s executive director for markets and international, said: “A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own.”

Rachel Reeves, the chancellor, added: “These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

Further reading

FCA Policy Statement PS24/6: Primary Markets Effectiveness Review: Feedback to CP23/31 and final UK Listing Rules

Railpen press release and public letter to FCA from 28 June 2023

FCA proposals will not make London a more attractive place for companies to list, says PLSA (28 June 2023)