UK pension funds push back against FCA listing plans
UK regulator FCA plans to replace standard and premium listing share categories with a single listing category for commercial company issuers of equity shares, in a bit to bolster the competitiveness of London Stock Exchange to its American and Asian counterparts.
The number of firms listed on the London Stock Exchange has dropped from approximately 2500 in 2015 to less than 2000 in 2023. In the first quarter of 2023, only five firms listed on the exchange, with a growing number of companies opting to go public on the New York Stock Exchange instead.
In its report, the FCA recognised that the proposed approach would “place a greater onus on investors” to carry out due diligence on companies before investing and on shareholders to secure sufficient engagement with companies on key transactions.
Under the dual share structure, which has been commonly adopted by US tech firms, the founder of a company could be issued with a "special share" which could potentially automatically outnumber other votes. For example, US social media giant has A and B shares under the US dual share structure, which provide Facebook founder Mark Zuckerberg with an automatic majority in shareholder resolutions.
But UK pension funds warn that the reforms would: “Roll back fundamental investor protections, such as the right to a shareholder vote on both significant and related party transactions, as well as the equal voting rights that serve as the foundation of a fair and democratic capitalist system.
“In turn, this would dilute investors’ ability to act as robust stewards of members’ assets, and ultimately diminish the UK’s reputation as the world’s leading ‘quality’ market and its role as a beacon for high corporate governance standards” the signatories warned in their letter to the FCA.
The initiative was backed by Railpen, Brightwell, Brunel Pensions Partnership, The Church of England Pensions Board, HSBC Bank (UK) Pension Scheme, Merseyside Pension Fund, NEST, People’s Partnership, TPT Retirement Solutions, and the Universities Superannuation Scheme (USS).
Caroline Escott, global stewardship lead at Railpen, said: “Although we welcome the current conversation on how to create vibrant UK capital markets, we think that many of the current proposals in the listings rules consultation in fact risk making UK-listed companies less attractive to the kinds of well-informed, long-term investors that companies tell us they are keen to partner with.”
Collectively, the signatories of the letter represented £300 billion of assets under management on behalf of over 22 million members.
Earlier this year, environmental law firm ClientEarth launched legal action against the FCA over alleged lapses in climate disclosures in the prospectus of energy company Ithaca.
