Equity capital markets reform: The UK is on the right track; the key now is to stay on course
Sam Meiklejohn and Paul Cliff, partners in equity capital markets, Gateley Legal
As equity capital markets lawyers, we’ve had a busy summer. On top of the usual deal workload, we’ve been getting our heads around the implementation of the new UK Listing Rules (UKLRs) and how they are likely to impact clients going forward. The rule changes themselves were no secret; following on from a review by Lord Hill in 2021, the Financial Conduct Authority (FCA) published an initial consultation paper on the proposals in December 2023. The new UKLRs came into force on 29 July 2024 and completely rewrote the rulebook for Main Market listed companies.
The key changes include removing the requirement for shareholder votes on significant (or Class 1) transactions and related party transactions, modifying the existing sponsor regime, creating a more favourable environment for dual-class share structures, and making significant changes to the eligibility requirements for IPO candidates. There is now a single listing category on the Main Market for commercial companies rather than the ‘standard vs premium’ approach of the past. The FCA is trying to make the UK a more attractive listing venue for pre-IPO companies and to make life easier for those already listed. We want to be seen as the listing venue of choice for innovative, high-growth, founder-led companies.
In conjunction with the listing rule reforms, an overhaul of the UK’s prospectus regime is also underway. The new regime is intended to simplify and modernise prospectus regulation without lowering regulatory standards, whilst also improving the quality of information investors receive.
It is still too early to assess whether the listing reforms (and the proposed prospectus reforms) will have the desired impact of revitalising the UK capital markets and encouraging more diverse, innovative companies to list. Market sentiment is, however, largely positive and the reforms have been welcomed by the wider adviser community. Ultimately, rule changes are one thing, but there are many factors that contribute to thriving domestic capital markets, not least investor appetite for risk and striking a balance between an attractive, high valuation on IPO and a realistic, considered valuation on IPO, particularly for capital-intensive issuers who are likely to return to market to raise funds around 18 months after IPO.
With no requirement to seek shareholder approval for significant or related party transactions, directors of public companies will need to give more thought to how they can be comfortable that a transaction is supported by shareholders and that shareholders are sufficiently informed of the transaction and the impact it will have on the company.
There has been much discussion in the market on how the new rules pertaining to the Main Market and the broader UK listing regime will affect AIM. Only time will tell, and AIM Regulation will need to ensure that AIM continues to be “match-fit” as a listing venue, but in our view the associated tax benefits of an AIM listing (i.e., no SDRT on AIM share transfers) and the eligibility for EIS/VCT relief will continue to be a significant pull factor towards an AIM listing for many high-growth companies. We would join other leading business figures in urging the Chancellor of the Exchequer to retain the relief on IHT applicable to AIM shares.
It’s been great to see so much focus placed on reenergising the UK capital markets and we can’t fault the approach so far. It needed a radical overhaul and that’s what we’ve got. The key now is to ensure that AIM retains its status as a competitive domestic listing venue and that the UK adviser ecosystem comes together to ensure that the message is loud and clear: the UK markets are open for business.
