UK Listing Reforms: FCA update on timing for reforms

CP23/31 Primary Markets Effectiveness Review -- an update

The UK Financial Conduct Authority (FCA) published Primary Market Bulletin 48 (PMB 48) on 26 April 2024. PMB 48 sets out the latest position on the timing of those changes, when issuers will be notified of which listing category their securities will be "mapped", attaches a draft board confirmation to be used on an application for listing once the changes are in force, and consults on various changes to guidance in the FCA's knowledge base in relation to the proposed changes to the UK listing regime.

The background to PMB 48 is set out in CP23/31 (published in December 2023), the latest FCA consultation paper on the Primary Markets Effectiveness Review (PMER) which contains the most far-reaching reforms of the UK's listing regime in three decades. For more detail on the reforms and PMER please see our briefing.

Timing of the changes to the listing regime

CP23/31 stated that the final rules for the new listing regime would be published in the second half of 2024. PMB 48 has now updated that timeframe to indicate that the FCA is intending to seek board approval for the final rules in June or July. As the FCA board meetings are held at the end of the month and assuming that there is a two week gap between approval and the rules coming into force as stated in CP23/31, the new regime is likely to come into force in either mid-July or mid-August 2024. The timing of the changes is particularly important for those listed companies who are involved in transactions which will be "mid-flight" at the time of the changes and will therefore be subject to new listing rules at that point.

Notification to issuers

CP23/31 sets out the approach to the new listing categories and how existing premium and standard listed companies will be mapped to the new listing categories by the FCA in advance of the rule changes. The FCA states in PMB 48 that it expects the notifications of the categories to be sent out to issuers from mid-May. Issuers who believe they have been incorrectly allocated to a category will have four weeks to revert to the FCA.

New issuer form on application for listing

The FCA sets out in CP23/31 its proposal regarding a new requirement for listed issuers to submit a board confirmation in relation to systems and controls in place in order to ensure compliance with the Listing Principles at the time of application for listing. The required wording was subsequently set out in the draft listing rules published in March 2024 and provided that an applicant for securities to listing would be required to provide confirmation from the board that it had established adequate procedures, systems and controls to enable it to comply with its obligations under the listing rules, disclosure requirements, transparency rules and corporate governance rules following admission.

The board confirmation form attached to PMB 48 provides that a duly authorised director must give, on behalf of the board of directors, various confirmations to the FCA covering, amongst other things, the directors' understanding of their responsibilities under the listing rules, disclosure requirements, transparency rules and corporate governance rules, that the directors have established procedures which enable the company to comply with the listing rules etc and that the directors are satisfied with the company's procedures, systems and controls in relation to certain aspects of the listing rules including timely and accurate disclosure if information to the market.  The confirmation will be required on all applications for listing, not just on an IPO and by for all types of securities, not just equity.

Concerns in response to this new requirement have been expressed to the FCA prior to its publication in PMB 48. In particular, market participants have queried whether this confirmation should be given by the issuer or the directors in a personal capacity, and noted that certain aspects of the declaration go beyond an issuer's continuing obligations under the Listing Rules.  The drafting could, in our view, be tightened up to iron out these points.

Although the FCA has stated that the form is not subject to consultation, it has indicated that it will receive feedback and it is therefore hoped that the FCA will take into account the feedback it is likely to receive on the form before the final version is published.

Changes to the Knowledge Base

The FCA is taking a phased approach to updating the technical notes in its Knowledge Base given the scale of the changes that are set out in CP23/31 and some consultations on amendments to existing notes will take place after the new Listing Rules come into force.

PMB 48 proposes that a considerable number of existing technical notes will be deleted when the new Listing regime comes into force. The FCA has also proposed changes to a number of the existing sponsor technical notes. The most important change to these notes, which relate to the sponsor's obligations in relation to due diligence on issuers, is to clarify that sponsors are not required to challenge third party work as a matter of course, rather challenge is only required where appropriate. This will be welcomed by sponsors.

New technical notes relating to sponsors will be published in due course and will address feedback received from sponsors on the sponsor regime. The new notes will cover areas such as the FCA's approach to sponsor reviews and guidance on expectations on the expertise of sponsors particularly in relation to areas of specialism outside their expertise such as ESG. The FCA also states that it will amend the existing guidance on record keeping to help sponsors with the practical challenges that they face. Again, a welcome reform.

Technical note on Sponsor services for a modified transfer of listing category

The FCA has also published a new technical note in relation to the sponsor confirmation required on a modified transfer of listing category. The confirmation requires the sponsor to confirm that it has not identified any adverse information that would lead it to conclude that the issuer would not be able to comply with its obligations under the listing rules, disclosure requirements and transparency rules. This is a negative confirmation which is different from the more normal positive confirmation that a sponsor customarily provides to the FCA.

The technical note confirms that the FCA will not expect a sponsor to undertake a broader assessment of the issuer's procedures, systems and controls given that the sponsor is entitled to come to a rebuttable presumption that the issuer has already been subject to and is complying with the relevant Listing and other rules, including MAR and has appropriate systems and controls in place. The basis of the confirmation will be that no evidence to the contrary has been identified in the course of the sponsor's work.

The FCA also confirms that the work it would expect the sponsor to do is limited to due diligence to support its confirmation as well as its own commercial and regulatory due diligence such as for take-on and reputational risks. The sponsor is not expected to undertake any special procedures or additional work to identify risks or concerns. It remains to be seen if the FCA's approach will lead to sponsors feeling comfortable to adapt their diligence procedures.

The consultation in relation to the proposed changes to the existing technical notes and the new technical note closes on 26 May.