The FCA has released a Policy Statement setting out enhancements to the UK Listing Regime as part of its review of the UK’s primary markets.

PS17/22 “Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime” contains a number of technical amendments to the Listing Rules.

The FCA published a consultation on these amendments in February 2017. See CP 17/4 “Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime” and our briefing: .

The FCA’s original proposals were positively received by market participants. The final rules set out in PS17/22 are therefore in line with the proposals contained in CP17/4. A few minor amendments have been made to reflect feedback received.

The new rules take effect on 1 January 2018.

Eligibility requirements for premium listed companies (LR 6)

The independent business requirement (LR 6.1.4R) will be split into three separate provisions. These are:

  • New LR 6.4.1R: An applicant must demonstrate that it carries on an independent business as its main activity.
  • New LR 6.5.1R: An applicant with a controlling shareholder must demonstrate that, despite having a controlling shareholder, the applicant is able to carry on an independent business as its main activity.
  • New LR 6.6.1R: An applicant must demonstrate that it exercises operational control over the business it carries on as its main activity.

A new UKLA Technical Note (UKLA/TN/103.1) covers the independent business requirements for companies applying for premium listing.

The three-year financial track record requirements have been clarified. Another new UKLA Technical Note (UKLA/TN/102.1) contains guidance on the financial information and track record requirements of LR 6. It notes that an applicant should be able to demonstrate a track record that puts prospective investors in a position to make an informed assessment of the business that is to be listed (LR 6.3.1R).

In some cases an applicant will have three years of financial information which does not properly reflect the applicant’s business, as the information does not demonstrate a revenue earning record that is representative of the business to be listed. In such cases the applicant does not have a compliant financial track record.

References in LR 6 to the FCA’s ability to waive the requirement for a clean working capital statement and the financial track record requirement will be deleted.

New concessionary route to premium listing for property companies

As a general rule, commercial companies which apply for premium listing are required to have a three-year revenue earning track record. There are already certain 'concessionary routes' to premium listing. The new concessionary route proposed in CP17/4 for property companies will be introduced on 1 January 2018. The new concession for certain property companies from the revenue earning track record requirements in LR 6.3.1R is meant to allow property companies to demonstrate maturity in other ways than through three years of revenue generation.

In CP17/4 the FCA identified two types of property companies which could be eligible for a new concessionary route. These were:

  • property companies which have been established for less than three years, but which predominantly hold mature, let assets that generate revenue
  • property companies which develop assets, and have done so for three years, but which focus on long-term projects.

The concessionary route focuses on the property valuation report rather than on the issuer's financial track record. Further guidance on the concessionary route is contained in a new UKLA Technical Note (UKLA/TN/426.1).

Changes to the profits test used by premium listed issuers (LR 10)

PS17/22 confirms that the following changes will be made to the profits test:

Anomalous results: If all of the following conditions are met, an issuer which has a premium listing can disregard the profits test for the purposes of classifying the transaction without consulting the FCA:

  • the calculation under the profits test produces a percentage ratio of 25% or more and this result is anomalous
  • the transaction is not a related party transaction
  • each of the other applicable percentage ratios are less than 5%.

Adjustments to the figures used in the profits test: If all of the following conditions are met, an issuer which has a premium listing can make certain amendments to the figures used in the profits test without consulting the FCA:

  • the calculation under the profits test produces a percentage ratio of 25% or more and this result is anomalous
  • the transaction is not a related party transaction.

The new rules will be contained in LR 10 Annex 1 at paragraphs 12R to 15G.

Although some respondents asked for guidance on the meaning of "anomalous", the FCA is not proposing to issue further guidance on this. The FCA will continue to monitor the situation when the new requirements are introduced and may produce further guidance if necessary. This reflects the FCA’s view that sponsors are familiar with making judgements on whether the result of any class test is anomalous.

Class 2 transactions are not affected by these changes. Although a number of respondents suggested that the proposals could apply to Class 2 transactions (where the anomalous profit test result is between 5% and 25% and the other class test results are below 5%), the FCA has decided to keep the existing FCA consultation requirement.

The new rules do not apply to standard listed issuers.

Issuers should note that they are still required to obtain the guidance of a sponsor in accordance with LR 8.2.2R.

Further guidance is contained in a new UKLA Technical Note (UKLA/TN/302.2): Classification tests.

Suspension of listing for reverse takeovers: a new approach

The presumption of suspension will be removed for listed issuers unless the issuer is a shell company (as defined in the Listing Rules). LR 5.6 will be amended accordingly. This reflects the FCA's view that proper price formation can take place based on the information disclosed as part of issuers’ obligations under MAR and the market can operate smoothly without the presumption of suspension.

Next steps

These new rules are due to take effect from 1 January 2018. Listed companies and their advisors should familiarise themselves with the new requirements and the technical notes. Companies seeking admission to premium listing after 1 January 2018 should prepare their submission based on the new requirements.