Changes to the UK sponsor competency rules

The UK Financial Conduct Authority (the FCA) has made changes to the sponsor competency rules set out in Chapter 8 of the Listing Rules with effect from 26 April 2024. The changes broaden the range of corporate finance activities that the FCA will take into account when considering the criteria for approval as a sponsor.

What are the changes?

LR 8.6R sets out the matters that the FCA will consider when looking at how a sponsor, or a firm seeking to become a sponsor, demonstrates its competence to act as a sponsor. The changes amend the sponsor competency requirements by:

• extending the requirement for a sponsor to have submitted a sponsor declaration to the FCA from within the previous 3 years to within the previous 5 years. For a person applying for approval as a sponsor, this would change to within 5 years of the date of the application;
• for sponsors and firms applying for approval as a sponsor that are unable to satisfy the above, allowing competence to be demonstrated through experience gained from providing corporate finance advisory services in the previous 5 years to issuers with (1) securities admitted (or proposed to be admitted) to a UK recognised investment exchange; and (2) a market capitalisation of at least the amount specified in LR 2.2.7R (currently at least £30 million or £700,000 for a closed-ended investment fund or open-ended investment company).

As a result of feedback, the FCA has made clear in guidance that the corporate finance services can include sponsor services where no sponsor declaration has been required. This clarification is to answer concerns expressed by some respondents given that sponsor declarations will not be required with such frequency once the new listing regime comes into force later this year.

The FCA has also amended Technical Note FCA/TN/715.3 to explain that relevant corporate finance experience will also encompass a relatively broad range of activities, including acting as nominated adviser on an AIM IPO, a financial adviser on a Main Market or AIM IPO or for the purposes of the Takeover Code.

Despite feedback from some international banks, the FCA has not agreed that experience providing corporate finance advisory services in other jurisdictions is relevant to sponsor competency. This is perhaps a missed opportunity, especially where firms have had experience as acting as a “sponsor” in other jurisdictions, gaining experience which could be more relevant than some of the other examples of corporate finance activities that have been included.

Why have the changes been implemented?

The FCA set out amended draft rules in CP23/31 and suggested the main reason for the suggested changes was fluctuating levels of market activity. In addition, once the new listing regime comes into force this summer there will be considerably less “touchpoints” when a sponsor declaration will be required. Both of these factors may mean that investment banks and corporate finance firms will have considerably less experience of providing sponsor services and providing a sponsor declaration in particular. The amendments to the sponsor competency requirements are intended to deal with this.