There is currently a strong push within London’s financial establishment, namely law firms, investment banks, brokers, insurance, the London Stock Exchange (LSE), and the Financial Conduct Authority (FCA), to relax listing rules. The proposed reform is designed to simplify and speed up company listings to attract entrepreneurs to list their companies in the UK capital.
Supporters of deregulation argue that because of stringent regulations, the UK is losing out to more lenient markets. However, as Britain leans towards deregulation of listing rules, some are expressing caution.
In an article about the watering down of regulations, Patrick Hosking, Financial Editor at The Times, warns of the potential repercussions of such an approach.
“Easing the regulations on IPOs may attract swashbuckling entrepreneurs to London but experience tells us it will also leave millions nursing losses.”
Hosking notes how the relaxing of UK listing rules has not ended well in the past.
“Reforms in 2006 that made it easier for resources companies to float in London led to a string of hyped listings, followed by share price flops. Names like Bumi, Essar Energy and ENRC briefly sparkled, then tanked. The latter two somehow managed to achieve membership of the FTSE 100, leaving millions of investors indirectly nursing losses,” he writes.
The FCA is set to approve rule changes imminently, including provisions that would grant founders more voting power per share, as well as permitting related-party transactions without consulting minority shareholders. The changes have raised alarm among pension fund trustees, who are key buyers of these shares.
Organisations like Railpen, the pension fund for 350,000 railway workers, and the People’s Partnership, which has millions of auto-enrolled members, have expressed concern that such reforms could make London-listed stocks less attractive, and further depress valuations.
Some pension professionals have suggested that the push for the reforms might have been driven by a close-knit group within the financial sector, including Dame Julia Hoggett, now CEO of the LSE, and current FCA chief Nikhil Rathi.
As Hosking notes, Labour, which is poised to take power after the general election, has expressed mixed views of the reforms, and their position could significantly influence the outcome. Early intervention of Labour could prompt the FCA to reconsider its approach. Without it, London could risk opening its door to less stringent regulations. While this may attract some, history suggests it could also result in disappointment, potentially leaving investors picking up the pieces.