Parliament: UK Listings Review – Government Response
On April 19, 2021 the Chancellor of the Exchequer set out the Government’s response, in a Written Statement, to the recommendations made by Lord Hill in his review of the UK’s listing arrangements published in March 2021, the UK Listing Review.
The recommendations made by Lord Hill were wide-ranging, as we discussed in our briefing, and in the Written Statement, the Government sets out how it intends to take forward each of the 14 recommendations made.
Seven of the recommendations are directed towards the Financial Conduct Authority (FCA) and the FCA intends to consider all the relevant recommendations carefully, including on free float, dual class share structures, and special purpose acquisition companies (SPACs). The Written Statement notes that the FCA has committed to acting quickly where appropriate, including by publishing a consultation by the summer, and a specific consultation on SPACs before that.
Six recommendations are directed towards HM Treasury (HMT), and will be taken forward as follows:
- The Chancellor will present an annual ‘State of the City’ report to Parliament (recommendation 1), with the first of these reports to be presented in 2022.
- Lord Hill recommended that HMT considers an additional ‘growth’ or ‘competitiveness’ objective for the FCA, as part of the Future Regulatory Framework (FRF) Review (recommendation 2). The first consultation on the FRF review closed on February 19, 2021 and welcomed stakeholder views on the current set of statutory objectives. It also sought views on the future overall accountability framework for the FCA (and PRA). The Government is currently considering the stakeholder responses received in relation to this consultation and will use these to inform a second consultation later in 2021. The Chancellor will carefully consider this recommendation as part of that process.
- Three of the recommendations, on reviewing the UK’s prospectus regime (recommendation 7), considering whether prospectuses drawn up under other jurisdictions’ rules can be used to facilitate secondary listings in the UK (recommendation 8) and facilitating the provision of forward-looking information by issuers in prospectuses (recommendation 9), all deal with the UK’s prospectus regime. The Government will bring forward a public consultation on the UK’s prospectus regime later in 2021.
- Lord Hill also raised the issue of improving the efficiency of further capital raising by listed companies (recommendation 13). Bringing together expertise specifically on this issue will be helpful to consider what more can be done to improve capital raising processes and consideration is being given as to what form this will take over the coming weeks.
One of the recommendations, concerning how technology can be used to improve retail investor involvement in corporate actions and their undertaking of an appropriate stewardship role, is directed towards the Department for Business, Energy and Industrial Strategy (BEIS). This recommendation will be taken forward by BEIS as part of its wider consideration of the findings from the Law Commission’s recent scoping study on intermediated securities. BEIS expects to announce a response to the study later in 2021.
(Parliament, Written Statement, UK Listing Review – Government’s response, 19.04.2021)
ecoDa: Corporate Governance Guidance and Principles for Unlisted Companies in Europe
On April 21, 2021 the European Confederation of Directors Associations (ecoDa) published an updated version of its Corporate Governance Guidance and Principles for Unlisted Companies, last published in 2010 (Guidance).
The Guidance notes that most unlisted enterprises are owned and controlled by single individuals or by coalitions of company insiders such as families. In many cases, owners continue to play a significant direct role in management. Good governance in this context is primarily concerned with establishing a framework of company processes and attitudes that add value to the business and help ensure its long-term continuity and success.
Shareholders in unlisted companies are typically restricted in terms of their ability to sell their ownership stakes. This lack of liquidity presents shareholders with a significant investment risk. Investors are forced to commit themselves to the company for the medium to longer term and an effective corporate governance framework provides a way of mitigating this risk. The Guidance takes unlisted companies through the issues involved in designing their own corporate governance framework. It also presents a set of governance principles that can be followed or not, the determination of the most suitable governance framework for the company being seen largely to be a matter for the shareholders and directors.
The 14 principles in the Guidance are designed to take into account the size, complexity and level of maturity of individual companies, and their objectives concerning their own development. The Guidance recognises that a ‘one-size-fit-all’ approach to governance frameworks at unlisted companies would be unhelpful. Given the diversity amongst unlisted firms, corporate governance principles should be applied in a pragmatic and flexible manner, reflecting the individual circumstances of each company.
By distinguishing between principles that are relevant to all companies (nine of the principles) and those relevant only to larger and more complex companies, or those seeking to grow (five of the principles), the Guidance provides a governance roadmap for family owners or founder-entrepreneurs as they plan the development of their companies over the corporate life cycle.
In order to provide further assistance to companies, ecoDa has developed a self-evaluation questionnaire that boards can use to assess the extent to which they are already applying the principles and identify whether there are areas in which they might want to consider taking action to strengthen their governance framework.
(ecoDa: Corporate Governance Guidance and Principles for Unlisted Companies in Europe, 21.04.2021)
(ecoDa, Corporate Governance self-evaluation questionnaire for unlisted companies, 21.04.2021)