Newsletter for primary market participants
April 2024 / No. 48
About this edition
Welcome to the 48th edition of the Primary Market Bulletin (PMB). This special edition consults on changes we propose to make to guidance in our Knowledge Base in relation to the listing regime, including rules for sponsors, in conjunction with our recent consultation paper CP23/31 – Primary Market Effectiveness Review.
We are also providing a draft version of the Procedures, Systems and Controls Confirmation Form that we propose to introduce for issuers to submit to the FCA at admission as described further in CP23/31.
These materials remain subject to the wider outcome of our consultation process on the new UK Listing Rules. They are subject to the FCA Board’s final decision on whether to proceed with changes. We expect to seek board approval of the final rules in June or July 2024.
We also finalise three technical notes relating to sponsor competence, following consultation in CP23/31.
What’s new
In December 2023 we published CP23/31: Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for Listing Rules reforms. As part of this CP, we also consulted on changes to the sponsor competence requirements. The consultation period for CP23/31 closed on 22 March (2 April 2024 for the additional tranche 2 instrument material), and the consultation period for our proposals in relation to sponsor competence requirements closed on 16 February 2024.
In this PMB, we are:
- Confirming final technical note changes in relation to sponsor competence rules in LR8, which coincides with final rule changes to LR8 confirmed today following CP23/31 in Handbook Notice 118.
- Consulting on changes to a number of technical notes in our Knowledge Base to reflect the proposed changes to the Listing Regime, including additional aspects of the sponsor regime.
- Consulting on the introduction of a new technical note relating to the role of a sponsor when an issuer, in certain circumstances, is able to transfer its listing using a modified process. This process is described in CP23/31 and in our recently published updated draft instrument which included proposed transitional provisions.
- Publishing a draft of the new Procedures, Systems and Controls Confirmation Form we propose to ask applicants for listing to submit with their formal listing application.
- Providing information on the timing of notification to issuers of their expected new listing category should the changes proposed in CP 23/31 go ahead.
Our approach to updating guidance in our Knowledge Base
Given the scale of the changes proposed in CP23/31, we are adopting a phased approach to consulting on corresponding changes to the guidance in our Knowledge Base. In this first consultation, we are focusing on existing technical notes that we consider are the most essential in supporting the understanding of the new UK Listing Rules (UKLR), or most frequently used by market participants. We are also proposing amendments to some existing technical notes to address some of the feedback on the sponsor regime that we referred to in CP23/31 and that we have explored through engagement with sponsors.
We plan to consult on further technical and procedural notes in future editions of PMB. We anticipate consulting on new technical notes relating to sponsors before the proposed UK Listing Rules come into play. These technical notes will help to address feedback on the sponsor regime. We have summarised the proposed new notes below.
We are drafting guidance on the FCA’s approach to sponsor reviews and on our expectations of sponsor firms when receiving feedback from the FCA. We have listened to concerns that have been raised that our review feedback can be misinterpreted as regulatory censure, leading to disproportionate systems and controls, and burdensome record keeping that creates additional costs for sponsors. We hope this will help to address these concerns.
We also propose to issue guidance on our reasonable expectations of the expertise of sponsors, particularly in relation to areas of specialism outside of the Listing, Prospectus Regulation and Disclosure Guidance and Transparency Rules. There are greater concerns in this area, particularly as new ESG requirements for issuers have been added to the Listing Rules, for example TCFD aligned reporting. We intend to emphasise the sponsor’s role as a sophisticated person, able to use common-sense judgment across a wide range of disciplines in the context of corporate transactions. We also intend to acknowledge that as part of that role, sponsors necessarily rely on other experts in specialist fields. We are aiming to clarify both our reasonable expectations in this regard and how sponsors might keep more proportionate records to support how they have exercised judgement.
We also propose to add to our guidance on sponsor record keeping to help sponsors with some practical challenges they face.
We are carefully considering further feedback that we receive during the consultation period and will consider further amendments to our rules and guidance for sponsors as necessary.
We will also consider other interventions or changes not involving guidance, for example our supervisory approach.
Importantly, this phased approach means some consultations on amendments to existing technical and procedural notes will take place after the implementation of the new UK Listing Rules. Pending these further updates, we expect firms and other market participants to interpret purposively references to the Listing Rules in light of the provisions of the UKLR once these have come into force.
When updating the technical and procedural notes we are consulting on we have assumed that the draft rules accompanying CP23/31 will be implemented as proposed. Should the rules be amended following the review of feedback to CP23/31, we will amend the draft updated and new technical and procedural notes as necessary and re-consult via a future edition of PMB.
Consultation feedback and changes to the Knowledge Base
We have made the following changes to the Knowledge Base further to our consultation in CP23/31 regarding sponsor competence and the related changes to LR8, which are published today in Handbook Notice 118.
FCA/TN/709.3 – Sponsor transactions – Adequacy of resourcing
We have amended this note to correct an inaccurate reference to LR16. We make other minor amendments, primarily reflecting changes to rule references resulting from the consultation on sponsor competence.
FCA/TN/714.3 – Sponsors: Guidance on the competence requirements set out under LR 8.6.7R(2)(b)
We have made minor amendments to this note to correct previous errors and aid understanding.
FCA/TN/715.2 – Sponsors: Practical implications of competence requirements for sponsors and applicants
We have changed the order of the items in this note to group together those dealing with similar things. We have also made changes to help clarify our expectations in relation to new sponsor competence requirements relating to corporate finance advisory experience.
Proposed changes to our guidance
We are setting out our proposed changes in two parts: Guidance in relation to the UK Listing Rules other than the sponsor regime and guidance in relation to the sponsor regime.
Guidance in relation to the UK Listing Rules other than the sponsor regime
We are consulting on the following proposed changes to the Knowledge Base:
- The amendment of 11 existing technical notes.
- The deletion of 9 technical notes.
Category: Eligibility
UKLA/TN/102.1 – Eligibility for premium listing – financial information and the track record requirement (deletion)
We are proposing to delete this note as the rules referred to are not proposed to be carried over into the UKLR.
UKLA/TN/103.1 – The independent business requirements for companies applying for premium listing – interpretation of LR 6.4, LR 6.5 and LR 6.6 (amendment)
We are proposing to amend this note to reflect the fact that the eligibility requirements in LR 6.4 (Independent business) and LR 6.6 (Control of the business) are not proposed to be carried over into the UKLR.
Category: Governance and conduct
UKLA/TN/203.4 – Compliance with the Listing Principles and Premium Listing Principles (amendment)
We are proposing to amend this note to reflect that the listing principles are proposed in the UKLR to apply to all listed companies, while the current premium listing principles 3 and 4 are proposed to apply as rules to issuers in the Equity shares (commercial companies) and the Closed-ended investment funds categories.
Category: Transactions
Primary Market/TN/301.2 – Refinancing and reconstructions (deletion)
We are proposing to delete this note, as LR 9.5.12R is not proposed to be carried over into the UKLR.
UKLA/TN/302.2 – Classification tests (amendment)
We are proposing to amend this note mainly to reflect that the profits test is not proposed to be carried over into the UKLR and to track the changes made in the new UKLR 7.
UKLA/TN/304.1 – Amendments to the terms of a transaction (amendment)
We are proposing to make smaller consequential amendments, mostly to reflect the changed rule references in the proposed UKLR.
UKLA/TN/307.1 – Aggregating transactions (amendment)
We are proposing to amend this rule to reflect the new listing categories proposed for the UKLR for issuers of equity shares, and the proposed removal of the requirement for a shareholder vote for significant transactions (except reverse takeovers) and related party transactions for issuers other than closed-ended investment funds.
UKLA/TN/308.3 – Related party transactions – Modified requirements for smaller related party transactions (amendment)
We are proposing to amend this note to reflect that the proposed UKLR no longer envisage a shareholder vote for related party transactions for issuers in the Equity shares (commercial companies) category, that shareholders of companies in the closed-ended investments category will only have a vote on larger transactions outside the scope of its investment policy and to reflect new rule references in the UKLR.
UKLA/TN/309.2 – Related party transactions – Content of RIS announcement (deletion)
We are proposing to delete this note, as the UKLR would not contain a requirement for a shareholder vote for commercial companies where a company enters into a related party transaction. While we recognise that shareholder votes on certain related party transactions are proposed to continue to form part of the related party regime for closed-ended investment funds, the current Listing Rules are clear that misleading information must not be published (LR 1.3.3R). This rule is proposed to be carried over into the UKLR and further guidance should not be necessary. In addition, the proposed announcement requirements in UKLR require disclosure stating that the transaction or arrangement is a related party transaction.
UKLA/TN/312.1 – Shareholder votes in relation to hypothetical transactions (amendment)
We are proposing to make smaller consequential amendments as result of changes to the UKLR, including reflecting the proposed new categories for issuers of equity shares.
UKLA/TN/314.1 – Reverse takeover and uncapped consideration (deletion)
We are proposing to delete this note, as the requirements for reverse takeovers would be included in the chapter on significant transactions in the UKLR, and the rules are clear that the class tests in UKLR 7 Annex 1 apply to reverse takeovers. UKLR 7 is also proposed to apply to issuers in UKLR 11 (closed-ended investment funds category).
Category: Working capital
Primary Market/TN/320.2 – Working capital statements – basis of preparation (amendment)
We are proposing to amend this note to reflect that the requirement for working capital statements in circulars is not proposed to be carried over into the UKLRs.
Category: Profit forecasts and estimates
Primary Market/TN/340.3 – Profit forecasts and estimates (amendment)
We are proposing to amend this note to reflect that the requirement for profit forecast and profit estimate disclosure in circulars is not proposed to be carried forward in the UKLR.
Category: Closed-ended investment funds
UKLA/TN/406.1 – Application of related party rules to funds investing in highly illiquid asset classes (deletion)
The proposed rules for closed-ended investment funds would allow for transactions with related parties without a shareholder vote where these transactions are explicitly covered by the investment policy (UKLR 11.2.9G/ UKLR 11.5.7R). We therefore believe that the content of this note in its current form has become obsolete and propose to delete it. However, we would continue to expect issuers to have in place effective procedures to manage conflicts of interests arising from such transactions. We will keep these types of transactions under review and may issue new guidance in future as necessary.
Category: Specialist companies
Primary Market/TN/420.3 – Cash shells and special purpose acquisition companies (SPACs) (amendment)
We are proposing to amend this note to reflect the new requirements for shell companies, including in relation to requirements around initial transactions and sponsors. We have also included guidance on our approach to the minimum market cap requirement for shell companies.
UKLA/TN/422.1 – Scientific research based companies (deletion)
We are proposing to delete this note as the relevant rules are not proposed to be carried over into the UKLR.
UKLA/TN/424.1 – Removal from the Official List of listed equity shares of individual funds of open-ended investment companies (deletion)
We are proposing to delete this note, as the requirement for a shareholder vote on cancellation no longer applies to this category of issuer.
UIKLA/TN/426.1 – Property companies (deletion)
We are proposing to delete this note as the relevant rules are not proposed to be carried over into the UKLR.
UKLA/TN/427.1 – Mineral companies (deletion)
We are proposing to delete this note as the relevant rules are not proposed to be carried over into the UKLR.
Category: Prospectus content
Primary Market/TN/633.2 – Pro forma financial information (amendment)
We are proposing to amend this note to reflect that we are proposing to remove the requirement that pro forma financial information in circulars and announcements should comply with the Prospectus Regulation requirements for pro forma financial information.
Guidance in relation to the sponsor regime
We are consulting on the following proposed changes to the Knowledge Base:
The amendment of 13 existing technical notes. Note: we are consulting on further versions of 3 technical notes, relating to sponsor competence to reflect the proposed implementation of the UK Listing Rules.
The addition of one new technical note.
Category: Sponsors
UKLA/TN/704.3 – The sponsor’s role on working capital confirmations (amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We have also clarified that our guidance for sponsors in relation to their role on working capital exercises is not intended to suggest that a sponsor should assume that a report by a third-party expert is required in all circumstances or that where a report from such an expert exists, the sponsor must always challenge the contents of that report.
UKLA/TN/705.2 – Sponsors: uncertain market conditions (amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We also propose minor changes to avoid any suggestion that a sponsor must, as a matter of course, challenge a working capital exercise.
UKLA/TN/707.1 – Sponsors who are part of an investment management group (amendment)
We propose to amend this note principally to reflect the changed rule references in the proposed UKLR.
UKLA/TN/708.3 – Sponsor’s obligations on financial position and prospects procedures(amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We also propose a number of minor changes to better reflect the scenarios in which a sponsor’s work will apply and to reflect proposed changes to the requirements for issuers. We also aim to clarify our expectations of sponsors, including seeking to avoid any suggestion that a report by a third-party expert is required in all circumstances or that, where the sponsor is provided with information by an issuer or third-party expert, it must challenge that information as a matter of course.
FCA/TN/709.3 - Sponsor transactions – Adequacy of resourcing
We propose to amend this note to reflect the changed rule references in the proposed UKLR.
UKLA/TN/710.1 – Sponsor services: Principles for Sponsors (amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We also propose a number of minor changes to better reflect the scenarios in which a sponsor’s work will apply.
UKLA/TN/711.1 – Sponsor notifications (amendment)
We propose to amend this note principally to reflect the changed rule references in the proposed UKLR.
UKLA/TN/712.2 – Additional powers to supervise and discipline sponsors (amendment)
We propose to amend this note principally to reflect the changed rule references in the proposed UKLR.
FCA/TN/714.4 – Sponsors: Guidance on the competence requirements set out under UKLR 24.4.12R(2)(b)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We make one minor change to avoid implying that a sponsor is required to challenge expert reports as a matter of course.
FCA/TN/715.3 – Sponsors: Practical implications of competence requirements for sponsors and applicants
We propose to amend this note to reflect the changed rule references in the proposed UKLR.
FCA/TN/718.1 - Sponsor’s duty regarding directors of listed companies (amendment)
We propose to amend this note principally to reflect the changed rule references in the proposed UKLR.
FCA/TN/719.1 – Sponsor’s obligations on established procedures (amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We also propose a number of minor changes to reflect proposed changes to the requirements for issuers. We also aim to clarify our expectations of sponsors, including seeking to avoid any suggestion that a report by a third-party expert is required in all circumstances or that, where the sponsor is provided with information by an issuer or third-party expert, it must challenge that information as a matter of course.
FCA/720.1 – Sponsor’s obligations on no adverse impact (amendment)
We propose to amend this note to reflect the changed rule references in the proposed UKLR. We also propose some minor changes to better reflect the scenarios in which a sponsor’s work will apply and to reflect proposed changes to the requirements for issuers. We also seek to clarify our expectations of sponsors, including aiming to avoid any suggestion that a report by a third-party expert is required in all circumstances or that, where the sponsor is provided with information by an issuer or third-party expert, it must challenge that information as a matter of course.
Primary Market/TN/721.1 – Sponsor’s confirmation in relation to modified transfer of listing category (new)
We have proposed introducing this new technical note to help sponsors understand our expectations in relation to the work they must perform when providing the confirmation proposed TP2.10R, TP3.10R or TP5.10R, in a ‘modified transfer’ scenario. This is principally because the form of assurance differs from that typically provided by sponsors in other scenarios.
Update on forms and checklists
We expect that updated forms and checklists will be available on our website with publication of the final rules.
Board confirmation form on compliance with continuing obligations and the Listing Principles
In CP23/31 we proposed to require, as part of the application for listing process, that a company’s board provide confirmation that the applicant has appropriate systems and controls in place to ensure it can comply with its ongoing listing obligations and the Listing Principles once admitted. This requirement is set out in the draft rule UKLR 20.3.1R.
We explained that a board declaration form would be created for this purpose. A draft of this form – the Procedures, Systems and Controls Confirmation Form can be viewed here.
We are not formally consulting on the content of this form, as it doesn’t form part of the Handbook and does not constitute guidance, but we are happy to receive feedback.
Mapping of securities to the official list – notification of issuers
Mapping of securities to the official list – notification of issuers
In CP 23/31 we are proposing to remove our current ‘premium’ and ‘standard’ listing segments and introduce instead a number of new listing categories for issuers of equity shares.
As explained in the CP, we are proposing to tell issuers before the rules come into force the category we expect their securities to be mapped to, should the proposals be implemented. We expect such notifications to be sent out from mid-May. Issuers who believe they have been incorrectly allocated will have four weeks to revert to the FCA. We discuss our approach to mapping to the new listing categories for existing issuers in the CP on pg.114 from paragraph 16.6 onwards.
We want to hear what you think
Please send your comments on our latest proposals by 26 May 2024 to [email protected].
Secondary international competitiveness and growth objective
The Financial Services and Markets Act 2000 as amended by the Financial Services and Markets Act 2023 requires us to consider the international competitiveness of the UK economy (including in particular the financial services sector), and its growth in the medium to long term.
The proposed changes to our guidance set out in this PMB are a direct consequence of the proposals in CP23/31. CP23/31 had the aim of seeking to set clearer and simpler rules across all listing categories for specific types of issuer or securities, while ensuring high levels of market transparency. We think our proposals should deliver more proportionate regulation and enable our markets to be competitive in attracting listings and promoting growth of UK listed companies. This would in turn support the wider UK economy and returns for investors.
Legislative and Regulatory Reform Act 2006 (LRRA)
We consider that the proposal has regard to the 5 LRRA principles, that regulatory activities should be carried out in a way which is:
- transparent
- accountable
- proportionate
- consistent
- targeted only at cases in which action is needed
We have had regard to the Regulators’ Code, particularly the requirement for proportionate and targeted regulatory activity. The aim of the amendment to the Knowledge Base in this PMB is to update guidance to issuers and primary market practitioners.
Equality and diversity
We are confident that our proposal does not give rise to equality and diversity implications, but we welcome comments should you have any concerns.