A review of the UK listing regime by HM Treasury, led by Lord Jonathan Hill, was announced in November 2020 and has been released this week. With the objective of providing recommendations for reform that will attract growing firms to list in London and help companies access the UK capital markets, the 86 page report was considered by Chancellor Rishi Sunak when devising the Spring Budget as announced recently.
Sunak said: “We asked Lord Hill to lead this review because we wanted bold ideas. The UK is one of the best places in the world to start, grow and list a business – and we’re determined to enhance this reputation now we’ve left the EU. That means boosting the UK’s business environment and making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike, whilst protecting the high standards that underpin our status as a world-leading financial centre.
“The Review has more than delivered and I’m keen we move quickly to consult on its recommendations, cementing the UK’s reputation at the front of global financial services.”
While many of the recommendations of the review have been well received, particularly regarding encouraging investment in UK businesses, some of the proposals could be seen as ambitious. Appearing alongside the Kalifa Review of UK Fintech, an independent review to identify priority areas to support the UK’s fintech sector also released this week, the two reports have given the financial sector much food for thought.
Here The Fintech Times speaks to fintech leaders to get their thoughts on Lord Hills Proposals
The SPAC Market
Charlotte Crosswell, CEO, Innovate Finance, particularly welcomed the findings, commenting on the review addressing the competitive market for SPACs.
She said: “We welcome the findings of Lord Hill’s UK Listings Review today. This report and the Kalifa Review of UK Fintech published last week, provide recommendations that will cater to the changing dynamic of our listing and capital raising environment. We have an incredible pipeline of companies who are scaling rapidly and we must respond accordingly to provide options for growth and patient capital in the private and public markets.
“We are particularly encouraged by the call to update rules around free float requirements and dual-class share structures, in order to attract founder-led and high growth companies to list in the UK. We are also pleased to see the Review addressing the competitive market for SPACs which are increasingly targeting European tech and fintech companies. The world has become even more interconnected, which risks a race to attract our most exciting companies to overseas markets.
“While it is important to retain high corporate governance standards, we must also show that we are willing to adapt our listing rules to attract the most exciting companies onto our public markets. Ensuring that our indices include growth sectors such as technology and fintech will be more reflective of the future growth of the economy and in turn will ensure the index performance benefits from this growth in the coming years.”
Linda Main, head of capital markets advisory at KPMG UK, had similar thoughts on SPACs and the proposals within the review. “However controversial, SPACs are providing an alternative mechanism for companies to access the public markets. The changes proposed are positive because they seek to put London on a level footing with other global financial hubs, principally New York.
“That said, there’s an element of “buyer beware” here. The people behind SPACs usually enjoy very good returns. It’s contingent on investors to take this into account when deciding whether to participate.”
The FCA should play its part
Ivan Sedgwick, Investments Director at LGB & Co comments: “Lord Hill’s Listing Review makes a number of constructive suggestions. Particularly welcome is the redesign of the prospectus regime which, in its current form, encourages the use of exemptions that can cut out smaller investors while failing to protect others. Requiring the FCA to play its part in building a positive business environment and rebalance priorities accordingly should also be embraced.
“The easing of liability on forward guidance may be helpful, though the US is quite strict on this and it does not seem to hold back activity there. Also looking to the US, shelf registration would be a welcome improvement in the UK, while allowing SPACs doesn’t see like a battle worth having even if past experience of shell companies, their closest equivalent in the UK, is that they tend to attract chancers and abstract wealth from shareholders. Provided there is proper disclosure, caveat emptor ought to apply.
However, though welcoming the review, Sedgewick also points out that some of its elements appear to be more cosmetic, such as rebranding the Main List. “The UK Government should remain cautious of embracing measures that might be seen as self-interested lobbying by industry. There is an implicit attack on pre-emption rules in the review with an endorsement of their suspension during the pandemic, and a proposal to remove the recent rules that allow third party research into IPOs would be a reversal of an investor-friendly measure that could be tweaked rather than removed.”
Karim Haji, head of financial services at KPMG UK, commented that the proposals laid out by Lord Hill could “have the potential to provide a timely fillip to the city of London”, despite appearing as “tinkering around the edges.”
He said: “Relaxing the rules on dual-class shares and the minimum level of free float are about providing entrepreneurs and investors with more flexibility and the incentive to raise and invest their capital here in the UK, which in turn helps the economy. When successful UK companies feel it is more beneficial to list in New York or elsewhere, it is very logical to consider how we can ensure London remains a world-class financial market that attracts the best businesses.
“Of course, a key driving factor in this is Brexit. There now appears to be a willingness to take advantage of the additional flexibility offered by being outside the bloc to boost London’s competitiveness on the global stage.”
Sam Smith, founder and CEO of finnCap Group agrees that the report’s proposals could attract more tech companies to London, but was disappointed that the review didn’t say more in support of the role of retail investors.
“Overall the review’s recommendations are positive and could make a big difference to attracting more high growth tech companies to list in London. But it is a shame that the review did not include more to support the role that retail investors can play.
“The technology already exists to run a retail offer as part of an accelerated fundraise with no delay to the issuance timeline or impact on pricing. For example, PrimaryBid (a finnCap investee company) has partnered with the London Stock Exchange to do precisely that.
“If the economy is to recover from the pandemic as quickly as possible, it will need to access the widest pool of capital available. That means the UK doing everything it can to attract both institutional and individual retail investors, not either-or.”