Big pension funds: FCA listing reforms will make it harder for UK companies to operate

Friday, June 21, 2024 11:09 AM

Pension fund groups have warned that changes to listing rules could weaken investor protections.

A group of Britain’s largest pension funds today sounded the alarm over planned changes to Britain’s listing rules to thwart efforts to remove restrictions from the London Stock Exchange.

In a letter to FCA Chairman Ashley Alder, a group of major pension funds, including Railpen and the Church of England Pension Board, warned that the FCA’s planned overhaul of listing rules risks weakening investor protections.

“As British asset owners, we naturally want the UK to continue to thrive as a global financial centre. However, […] “These proposals will lead to the healthy capital markets we all want,” the groups said in the letter.

“If anything, we believe it will exacerbate the current problems by making the UK a less attractive destination for capital and making UK-listed companies less attractive to the high-quality long-term investors that pre- and post-IPO companies are looking for.”

“As a result, the cost of capital for UK-listed companies may rise as investors demand higher returns for increased risk.”

The warning comes after the FCA introduced plans last year to simplify listing rules and streamline the process for companies to list, following a decline in the number of listings over the past two years. Just 23 companies listed last year, a 60% drop compared to an already quiet 2022.

As British asset owners, we naturally want the UK to continue to thrive as a global financial centre. However, […] The proposals would lead to the healthy capital markets we all want.

Nikhil Rathi, head of the FCA, sped up the plan after Cambridge-based chipmaker Arm was rejected by the London Stock Exchange for a New York listing, in part because of the FCA’s strict listing rules. The proposed rule changes would eliminate the need for companies to consult shareholders on certain transactions and would allow the use of long-standing dual-class share structures that give founders stronger voting power in their companies.

According to the original schedule, regulators were scheduled to introduce the new rules next month.

But the pension fund group said it believed the “evidence base” was clear that “diluting shareholder rights in this way can have a negative impact on company value even in the short term”.

“This will lead to even worse outcomes for our members,” they warned.

The group’s complaints are likely to irritate many in the City, as the amount of pension money flowing into listed companies has been declining over the past two decades.

According to think tank New Financial, just 4% of domestic pension funds are currently invested in the stock market, down from 39% in the early 2000s.

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