FCA creates new category within its premium listing regime for sovereign-controlled companies

The Financial Conduct Authority (FCA) has today finalised rules creating a new category within its premium listing regime to cater for companies controlled by a shareholder that is a sovereign country.

The FCA said that the creation of a new category within the premium listing regime recognises that the relationship between a sovereign controlled company and the state that owns it is likely to be different from the relationship a company would have with a private controlling shareholder. In addition, more information is available on sovereign states than on any other type of controlling shareholder.

The City watchdog said that while there may be relatively few listed commercial companies with sovereign controlling shareholders, the listing regime should have appropriate ways of accommodating such companies, for example companies on the path to privatisation.

In July last year, the FCA consulted on proposals aimed at encouraging such companies to choose the higher standards of premium listing, rather than standard listing.The FCA thinks there is considerable benefit to investors if corporate issuers agree to meet these additional premium requirements.

In light of feedback received to the consultation, the FCA agrees with certain points made and is taking forward the proposals with refinements to ensure the regulatory requirements are suitably tailored to achieve the best outcomes for investors and issuers alike.

The FCA is therefore including requirements in the category in the following areas.

Two remaining key modifications to the requirements for companies in this category in the final rules are:

As in the FCA’s original consultation, other features of the premium listing regime apply as usual. These include the need to demonstrate that a company is carrying on an independent business, the requirement to disclose information regarding the issuer’s compliance with the Financial Reporting Council’s Corporate Governance Code, proportionate voting rights and adherence to the principles of pre-emption rights.

Andrew Bailey, FCA chief executive, said: “These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing. This raises standards. This package recognises that the previous regime did not always work for these companies or their investors. These rules encourage more companies to adopt the UK’s high governance standards.”

The new category will be effective 1 July 2018 but some business leaders said they were ‘deeply disappointed’ in FCA’s decision.

Responding to the move, Stephen Martin, Director General of the Institute of Directors, said: “The IoD is deeply disappointed that the FCA has decided to press ahead with the creation of a new premium listing category which reduces key corporate governance requirements. This decision has been made despite opposition from across the governance spectrum and without providing evidence as to the necessity for the reduction in standards. While we recognise that the regulator has taken on board some of the IoD’s concerns in relation to the election of independent directors, they do not go far enough. The IoD reiterates its recommendation that the appointment of independent directors should be ratified by a binding vote of independent shareholders, as well as by the vote of the shareholder constituency as a whole. The FCA fails to provide a convincing justification for why listing rules relating to premium category issuers should be waived or removed in cases where the issuer has a controlling sovereign shareholder. If anything, we believe that listing rules should be strengthened for this category of issuer given its distinctive governance challenges and risks.

“A premium listing should indicate to investors that the company in question is meeting the highest standards of boardroom and reporting requirements set by the listing authority. Its very name, ‘premium’ is given to reassure investors that the corporate form they are entrusting with their money has undertaken a commitment to these standards. By allocating this term to organisations which are not obliged to meet key requirements in relation to minority shareholder protections and independent directors, a central tenet of UK corporate governance, the FCA not only risks the market’s reputation with investors but the UK’s global reputation as a leader in best practise and good governance.

“Far from being an imposition on companies, these standards should be a kitemark of the best way to do business. Good corporate governance is only a burden on companies who fail to practise it. And our continued maintenance of these standards should be viewed both as a competitive advantage and an opportunity to further disseminate best practice across the corporate world.”