Investors expressed concern over the erosion of shareholders rights that was outlined by UK financial regulators on Wednesday in their planned overhaul of British Listing Rules.
The Financial Conduct Authority’s proposed shake up would allow companies to list more easily on the London Stock Exchange. However, this would dilute the voting rights of investors and expose them to higher-risk stocks.
The plans aim to boost London’s competitiveness in an effort to prevent a exodus from the LSE where the number listed companies has dropped by 40% since 2008. The plans are aimed at boosting the competitiveness of London in a bid to a data of businesses from the LSE, where listed companies have fallen by 40 per cent since 2008.
The FCA proposals would eliminate the requirement for companies to submit three years’ worth of audited financial statements and combine London’s premium and standard markets into one category. This would make it easier for early-stage businesses to list.
Dual class shares would also see “more permissive changes” as they give founders of companies greater voting rights than ordinary shareholders.
Richard Buxton of Jupiter UK, UK equity manager, described the proposals as “a massive lowering of governance standard”.
He said: “Allowing changes like dual class shares are a massively regressive step. . . If, for instance, it attracts companies that do not have three years’ worth of audited financial statements, there will be disasters and scandals.
“What we must do is to reform the UK equity market, not to erode shareholder rights.” For example, defined contribution schemes should heavily invest in UK stocks.
Caroline Escott is a senior investment manager for Railpen. She oversees PS37bn in pension assets. Dual class shares, she said, “strike the heart” of fair and democratic financial markets by removing voting right.
David Cumming is the head of UK equity at Newton Investment Management. He warned that investors, in particular, would lose certain safeguards. Investors will face higher risks if they do so. “The issue is that [retail] investor who are not well-equipped might be vulnerable.”
Chris Cummings said that the Investment Association (which represents UK asset management firms) needed to put in place “appropriate safeguards to deliver real benefits to pensioners and savings invested in listed companies.”
Other fund managers have applauded these proposed changes. Stephen Yiu of the Blue Whale Growth Fund said that the change could encourage more tech companies. We’ve invested in US tech stocks for the last few years. There is a huge ecosystem in the US. “It’s wonderful that there are changes now in the UK but is it too late?”
Danny Tricot is an attorney at Skadden who defended this move by the regulator. “The FCA must ensure that disclosures are accurate. The FCA should not have the job of deciding whether or not a transaction is legal. . . They don’t comply with the rules, and so cannot be done. “This only harms listed companies, their shareholders and investors.”
Simon Thomas, UK Head of Capital Markets at Clifford Chance also supported the regulator. He said that “benefits [of the reform] outweigh the greater risk [of failure].