Pension schemes argue London listing reforms would damage City

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Plans by the UK’s financial regulator to encourage more companies to list their shares in London have triggered a hostile reception from British pension schemes, which warned on Wednesday that the proposals would damage the City’s attractiveness as a global business centre.

In an open letter to the Financial Conduct Authority, 10 of the largest pension schemes warned the watchdog that its proposed reforms to the UK’s listings regime would damage “fundamental investor protections”.

The signatories, which include Railpen, Nest and the Universities Superannuation Scheme, argued the planned overhaul would have the opposite effect to that envisaged by the watchdog. The FCA is looking to encourage more companies to come to London, where the number of listings have fallen by 40 per cent since 2008 in the face of growing competition from exchanges in the US, continental Europe and Asia.

The letter highlighted the threat posed to the right of shareholders to vote on significant transactions, such as the takeover of a UK-listed company by a related party.

The 10 pension schemes, which oversee a combined £300bn of retirement savings, argued the proposed dilution of shareholder rights would make it more difficult for institutional investors to act as effective stewards of their assets.

The FCA’s proposals would remove the need for companies to have three years of audited accounts and merge London’s standard and premium markets into a single category, making it more attractive for early-stage companies to list. The changes would also give company founders greater voting rights over ordinary shareholders through the use of dual class share structures.

“We do not think that the proposed changes will solve the fundamental issues affecting our equity markets. Rather, we think that they will amplify the current challenges as well as leading to worse outcomes for our members,” said Michael Marshall, head of investment risk and sustainable ownership at Railpen, the pension scheme for UK railway workers.

The FCA’s plans would also “diminish” the UK’s reputation for robust investor protections and high corporate governance standards, the letter said.

The Pensions and Lifetime Savings Association, a trade body for workplace pension plans, also expressed concerns about the reforms in a separate response to the watchdog’s consultation, which closed on Wednesday.

It argued the proposed rule changes “may not” result in more listings while also reducing the standards expected of existing publicly traded companies and diluting the overall quality of London’s equity market.

“The new rules run the risk of having a contrary effect to what is hoped for, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies,” said Maria Espadinha, a senior policy adviser at the PLSA.

The FCA has acknowledged privately that the rule changes would require investors to do more due diligence work and put more onus on shareholders to engage with companies on key transactions. The regulator argues that the changes will bring the UK into line with many other jurisdictions and help to create more jobs and economic growth. 

“Any reform of the London stock market will understandably attract a range of views, which is why we are conducting an open discussion on the proposals and the shift in risk appetite they would entail. We look forward to further discussions with investors,” the FCA said. The watchdog plans to publish the revised listing rules in the autumn.

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