PLSA publishes response to the FCA Primary Markets Consultation

The Pensions and Lifetime Savings Association has published its response to the Financial Conduct Authority’s (FCA) consultation on primary markets effectiveness.

Due to concerns around the long-term decline in number of UK listed companies, which has fallen by 40% since 2008, the FCA launched a consultation proposing to replace standard and premium listing share categories with a single listing category for commercial company issuers of equity shares.

The PLSA and its members believe the proposed changes would weaken shareholder rights by removing some important checks and balances, in particular for asset owners and retail investors, leading to a lack of diverse input and challenge from asset managers to companies.

Download the PLSA’s full submission to the FCA here.

Decline in UK Markets 

One of the main arguments within the consultation is for the introduction of a single listing category is the “widely discussed concerns around the long-term decline in number of UK listed companies, which the UK Listing Review found had fallen by 40% since 2008.

We agree there has been a decline in Initial Public Offerings (IPOs) in the UK – not just across the premium segment, but across other segments too. However, it is not proven that governance standards and investor protections required by a premium listing are, specifically, the root cause of the decline in IPOs across both the main market and the Alternative Investment Market (AIM).

As capital markets are complex, we would be supportive of an evidence-based, cross-governmental investigation into the root causes of this decline, which could then provide the appropriate basis for solutions which genuinely make a difference and continue to require shareholder approval in circumstances which warrant this.

UK Market is fit for purpose 

International investors have told our members the UK market is considered attractive and is able to hold its own against other financial markets due to high corporate governance standards and robust investor protections.

As they are set, the current proposals may not result in more companies listing, but will reduce the standards expected of existing companies (diluting quality universally). The new rules run the risk of having a contrary effect to what is hoped for, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies.

Joe Dabrowski, Deputy Director of Policy, PLSA, said: “The UK is an attractive market for international investors precisely because our governance standards are high. Companies achieving a UK listing is a powerful signal that a company is well-run and well-placed to thrive now and over the long term.

“As they are set, the current proposals may not result in more companies listing, but will reduce the standards expected of existing companies (diluting quality universally). The new rules run the risk of having a contrary effect to what is hoped for, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies.

“This is because rolling back these fundamental investor protections means that asset owners would find it more challenging to act as effective stewards of their assets, which in turn would make them less certain that investing in a UK-listed company could lead to the sustainable financial returns scheme members and other savers need.”