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The law of rules

Last October, the Financial Services Authority (FSA) published a hefty tome, the consultation paper CP12/25 – Enhancing the effectiveness of the Listing Regime and feedback on CP12/2.

The paper set out both the FSA’s conclusions on the proposals made in its January 2012 consultation paper CP12/2 and consulted on further proposed amendments to the Listing Rules.

The CP12/2 changes, except those relating to "externally managed companies", came into force from January 2013 (see box). The consultation on the new proposals ended in January and publication of the feedback on these proposals by the UK Listing Authority, (UKLA, now part of the Financial Conduct Authority), is expected soon.

The Proposal

Through CP12/2, the UKLA posed two questions:

  • how to encourage independent governance of premium listed companies with a controlling shareholder; and
  • how to ensure that the "free float" requirements do not discourage new issuers from the London IPO market.

In this latest proposal, the UKLA raised issues about "misaligned behaviour" on corporate governance, arguing that the "comply or explain" regime in relation to the UK Corporate Governance Code was not sufficient on its own to deal with these concerns. They highlighted investor community concerns regarding companies where a "single dominant shareholder can exert effective control over operational, governance or strategic decisions".

Back to the future?

In 2004, provisions relating to controlling shareholders were removed. The UKLA now proposes to reinstate these rules, which require that premium listed companies are capable of acting independently of a "controlling shareholder". A controlling shareholder is a holder of shares or voting power conferring significant influence over the management of the company or a holder of at least 30% of shares or voting power.

New premium listing applicants must enter into a relationship agreement to ensure that transactions and relationships with any controlling shareholder are on normal arm’s length commercial terms, and that the controlling shareholder cannot influence the day-to-day operations.

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