City of london

The Lord Hill listing review aims to boost London's competitiveness in the post-Brexit era.

A review of the listing regime by former EU financial services commissioner Lord Jonathan Hill, along with the annual budget, have important implications for the competitiveness of the City of London.

Lord Hill’s review, published March 3, aims to boost the competitiveness of London’s equity exchanges at a time when they are losing listings business to New York and trading in euro-denominated shares has shifted to EU trading centres.

“Post-Brexit, the UK government is taking action to ensure the City can continue to effectively compete with other global financial centres in attracting fast-growth companies,” said Chris Locke, a partner at EY. 

“[The proposals] address some competitive disadvantages that had built up over time in the London listing regime. Most of them were self-inflicted, however, and while the review is branded post-Brexit, there is little here that could not have been achieved pre-Brexit,” said Nicholas Holmes, a partner at law firm Ashurst.

On the same day, UK finance minister Rishi Sunak announced changes in his annual budget with some measures aimed at banks. 

Dual class structures

Lord Hill advocates dual class share structures in the London Stock Exchange’s (LSE’s) premium listing segment, allowing directors enhanced voting rights, which are popular with tech company founders and well-established in other jurisdictions. The review says this must incorporate high governance standards.  

He recommends reducing the minimum free float requirement from 25% to 15%. He also wants to liberalise rules relating to the listing of special purpose acquisition companies (SPACs), which raise money to acquire private businesses. The US saw 248 SPACs listings last year.

A key UK deterrent to SPACs is that trading in the shares must be suspended when they announce an acquisition, which temporarily locks-in investors. Lord Hill says the Financial Conduct Authority should develop rules to protect shareholders and draft SPAC disclosure requirements. These vehicles are seen as a fast way for private companies to list. There are other recommendations, including reviewing the prospectus regime, so that admission to a regulated market and offers to the public are treated separately. Other advice includes publishing an annual report on the state of the City and its competitiveness. 

Some asset managers believe some of the measures would dilute UK governance standards and investor rights, while Ruffer Investment Management recently dismissed SPACs as a financial folly similar to the 1720s South Sea bubble.

“Some of the proposals which we feared would represent an attack on good governance don’t look quite as stark in detail, with a number of safeguards proposed,” said Richard Wilson, chief executive at brokerage Interactive Investor, commenting on dual class share structures. He welcomed the government contemplating improving capital raising models and greater retail investor participation. 

“The Hill review proposals mark a turning point for the UK listing regime. The relaxations of the free float requirement and the use of dual-class shares mean that more founders of technology and other businesses will consider the LSE for their initial public offerings (IPOs),” said Tom Vita, a partner at law firm Norton Rose Fulbright. “If the proposals go ahead, we could also see more London-listed SPACs as the reverse takeover suspension requirement has contributed to London’s complete absence from the current round of SPAC IPOs in New York and elsewhere.”

Important first step

Chris Cummings, chief executive at the Investment Association, said the review is an important first step to help re-energise capital markets and attract innovative high-growth companies to set up, list and grow their business operations in the UK. “The much-needed rebranding of the standard listing segment and the review of the prospectus regime are important steps in achieving a modernised listings regime,” he said.  

Meanwhile, Mr Sunak announced that corporation tax will jump from 19% to 25% in 2023, but recognised that this would damage UK bank competitiveness internationally. As such, he said the 8% bank corporation tax surcharge will be reviewed, expected to happen in the latter half of the year. The news was welcomed by banks which have lobbied against the surcharge. 

This article first appeared in The Banker’s sister publication Global Risk Regulator.


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