Listing rule proposals—protecting the minority?

Listing rule proposals—protecting the minority?

Will the Financial Conduct Authority’s (FCA) plans to strengthen minority shareholder rights succeed? Mark Austin, a partner in Freshfields Bruckhaus Deringer’s capital markets practice, reviews the FCA’s proposed new listing rules and advises lawyers how to prepare for the changes.

Original news
Consultation: Enhancing the effectiveness of the Listing Regime—Feedback and further consultation on related issues, LNB News 05/11/2013 135
Enhanced shareholder protection and improved transparency requirements for premium listed companies are under review as part of a FCA consultation on increasing the powers of shareholders. The consultation, which is the second of its kind, aims to improve shareholder governance in a proportionate and effective manner. Responses to the consultation must be received by 5 February 2014.

Why has the FCA put forward these proposals?
To strengthen minority shareholder rights where they are at risk of being abused—in particular where a controlling shareholder of a premium listed company does not maintain an appropriate and arm’s length relationship with the listed company.

What action has been taken to date?
In October 2012, the FCA proposed several changes to the UK listing regime in this area in its consultation paper CP12/25. The consultation closed in January 2013 and the FCA has undertaken extensive discussions with stakeholders about the proposals. CP13/15 was published earlier this month and consists of both feedback on the responses received to CP12/25, as well as a further consultation in certain areas.

Have changes been made to the original proposals?
The FCA has dropped several of its proposals and has instead proposed targeted measures to reinforce shareholder protections in situations where it believes they need to be strengthened, rather than rules to raise the general level of regulation.

The consultation closes on 5 February 2014. The FCA intends to publish its feedback in the first half of 2014 and, depending on the results of the consultation, to implement the final rules in ‘mid-2014’.

Does the consultation examine ‘relationship agreement’?
Relationship agreements for premium listed companies with controlling shareholders will become mandatory and must include ‘independence provisions’ to ensure the business remains independent of the controlling shareholder’s influence. The FCA has stepped back from its previous more onerous proposals. The existence of, and compliance with the independence provisions in, the relationship agreement will need to be disclosed in the company’s annual report.

Consultation proposa

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