London Stock Exchange set to decline in coming years, FTSE boards warn

Slightly more than half of FTSE 350 company boards believe the London Stock Exchange will decline in the coming years, according to a new survey, in a blow to the UK government’s plans for capital markets reform.

The Chartered Governance Institute UK & Ireland’s Boardroom Bellwether survey of FTSE company secretaries found that 53 per cent thought the capital’s flagship bourse would experience further delistings and a worsening of its international position over the next five years.

Meanwhile, just under a third (31 per cent) said the stock market was set for a recovery in the coming years.

The survey comes after a tumultuous few years for London marked by big names moving their listings overseas, a drop-off in IPOs and heavy outflows from UK equity funds.

Signs of a negative outlook have persisted despite an urgent effort by the government and Financial Conduct Authority (FCA) to boost Britain’s capital markets, including an overhaul of listing rules in July designed to make it easier for companies to float in London.

“The survey results confirm our view that the FCA is on the wrong track with its recent reforms,” said Peter Swabey, policy & research director of The Chartered Governance Institute.

“The FCA’s reforms were counter-productive. They have removed important investor protections, whilst doing nothing to attract new listings.

“Does the FCA really think that allowing a host of low-quality companies to list in London is going to solve the problem of the all-share index underperforming the S&P 500?”

The new rules allow companies to carry out more activities without a shareholder vote and make it easier for them to have two classes of shares, an arrangement often preferred by entrepreneurs or early-stage investors.

However, the shake-up has unsettled some corners of the market. In June, a group of the country’s top pension funds called on the FCA to reverse the plans on the grounds they would water down protection for investors.

An FCA spokesperson said: “We undertook the most far-reaching reforms of the UK’s listings rules in three decades because our regime had fallen increasingly out of step with those of other countries.

“While regulation is only one factor in supporting vibrant listed markets, our new rules aim to encourage companies to list and raise capital in the UK, increasing opportunities for investors and supporting national growth.”

Swabey said liquidity was “the bigger issue” and called on the government to “listen hard and to think of radical ways to restore faith in the stock market”. “Pension fund reform is likely to be the quickest win,” he added.

Think tank New Financial has found that on “virtually every metric” UK pensions are towards the bottom of the pack in their allocation to domestic equities compared with 12 other developed pension systems.

In July, the new Labour government announced a “landmark review” to explore ways in which billions of pounds worth of assets held by pension funds could be directed to productive assets, helping to fuel growth across the country.

Elsewhere, 44 per cent of survey respondents said UK businesses were over-regulated, compared to just three per cent who complained of under-regulation.

A source close to the FCA said its reforms were trying to reduce this perceived burden and noted that its new listing rules had only recently come into force.

The findings were based on 72 responses from company secretaries: 42 from the blue-chip FTSE 100 and 30 from the mid-cap FTSE 250. 

A Treasury spokesperson commented: “The UK continues to be the leading hub for investment in Europe, with London raising more than three times the amount of equity capital this year as the next three European exchanges combined.

“The FCA’s overhaul of listing rules and the action we’re taking to unlock more capital through pension reforms will make the UK even more attractive to innovative companies.”

The London Stock Exchange Group declined to comment on the survey.