Lawyers say that Shein’s pursuit for a London listing placed the UK Financial Conduct Authority (FCA) under intense scrutiny. The regulator is weighing up its approval while trying to balance Britain’s reputation as a country with strong corporate governance and its appeal as a business location.
has filed a confidential document to the FCA, indicating that plans for an initial public offering in the UK are moving forward.
A London listing for Shein would be a major coup for the City but it would also bring with it reputational risks. The company was accused of using forced labour to supply cotton and lax environmental standards. Both allegations are denied.
Alasdair steele, head equity capital markets of law firm CMS, said that the FCA will be “very focused on making a right decision”. They will be mindful of the consequences of making the wrong decision, such as being criticized for listing a bad company or turning down a good one.
Shein has decided to pursue a London IPO after abandoning a plan to go public in New York earlier this year due to growing tensions between China and the US, where its majority of staff and manufacturing is based.
Donald Tang , the executive chair of the company, told this week that it was launching a €200mn Fund to combat fashion waste while the company awaited a decision regarding the IPO. This is due to scrutiny over its ESG standards. The company also has a backup plan to list in Hong Kong.
Francesca Bugg said that Shein’s circularity fund was a good step to prove their commitment towards sustainable fashion. It does not, however, meet or contribute to any of the UK’s strict ESG requirements which will be required by Shein when they list.
Shein explained that the fund is part of “ongoing efforts” to create a sustainable and responsible fashion sector. It also adds to other initiatives, such as the use of discarded materials by other brands.
According to data from the London Stock Exchange and Dealogic, the UK will only account for 5 per cent of global IPOs between 2015 and 2020. According to data from London Stock Exchange and Dealogic , between 2015 and 2020 the UK will account for only 5 percent of global IPOs.
The FCA is responsible for protecting investors from “investor harm” in relation to listed companies. Listings must include corporate governance disclosures.
The watchdog has no enforcement or investigation powers for breaches of laws outside its jurisdiction, like the Modern Slavery Act, or tax laws. Lawyers say that it would be rare for the FCA not to list a company if the listing was detrimental to investors.
One equity capital markets attorney said that “the FCA is in a tough spot” because they want to be more commercial and pragmatic, but we also want to maintain our corporate governance standards. He added that the Shein IPO was “really significant for how they will behave moving forward”.
A company submits an eligibility letter to the FCA before submitting a formal application for listing. This is often submitted along with a draft prospectus, or another listing document, which contains financial and other important information for investors. These documents enable the applicant to work out any issues with the FCA before submitting an official listing request.
Lawyers report that when the FCA indicated that the listing would be unsuccessful, many companies withdrew from the process. They tried to hide the fact by making statements like “we do not have immediate plans to list on the London Stock Exchange”.
Andrew Gillen is a senior partner and corporate lawyer at Travers Smith. He said that if successful, the IPO of a high-profile, large international company like Shein would provide a boost to UK’s market.
“However in assessing Shein’s eligibility, FCA must take into account Shein’s capability to meet and continue complying with FCA’s Corporate Governance Standard.”
Shein and the FCA declined to comment.
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