Top pension funds: FCA listing overhaul will make life harder for UK firms

A group of the UK’s top pension funds have sounded the alarm on planned changes to the UK’s listing rules today in a bid to derail efforts to strip back regulation from the City.

In a letter to Ashley Alder, the chair of the Financial Conduct Authority, a group of top pension funds including Railpen and the Church of England Pensions board warned that the FCA’s planned shake-up of listing rules risked watering down protections for investors.

“As UK asset owners, we naturally want to see the UK continue to thrive as a global financial centre. However, we do not think the […] proposals will lead to the healthy capital markets we all want,” the group wrote in a letter.

“Instead, we think they will make the UK less appealing as a destination for capital, exacerbating the current issues by making UK-listed companies less attractive to the kinds of high-quality, long-term investors that both our pre- and post-IPO companies tell us they are looking for. 

“In turn, this could raise the cost of capital for UK-listed companies as investors require a higher return for the increased risk.”

The warnings point to plans introduced by the FCA last year to streamline the listing rules and ease the way that firms can float, after a drop-off in listings over the past two years. Just 23 firms floated last year, down 60 per cent on an already quiet 2022.

As UK asset owners, we naturally want to see the UK continue to thrive as a global financial centre. However, we do not think the […] proposals will lead to the healthy capital markets we all want

The plans were hurried out by FCA chief Nikhil Rathi after Cambridge-based chipmaker Arm snubbed London to float in New York, partly due to the FCA’s stringent listing rules. Under the proposed rule changes, firms will not be required to consult their shareholders on certain deals and will be allowed to use long-term dual-class share structures, which can offer founders more powerful voting rights in their companies.

According to the original timelines, the regulator would introduce the new rules next month.

However, the group of pension funds said they believe the “evidence base” is clear that “diluting shareholder rights in this way can be detrimental to firm value even in the near-term”.

“This will in turn lead to worse outcomes for our members,” they warned.

Complaints from the group are likely to irk many in the City after a drop-off in the amount of pension cash flowing into listed companies over the past twenty years.

Domestic pension funds now invest just four per cent of the stock market, down from 39 per cent at the turn of the milennium, according to think tank New Financial.