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Some of the signatories to the ICGN letter included Allianz GI, AXA IM, Baillie Gifford, Columbia Threadneedle Investments, Impax AM, Jupiter, Newton IM, Robeco and Scottish Widows.
In a letter on behalf of its members, the International Corporate Governance Network (ICGN) said the FCA’s proposals to replace the ‘standard’ and ‘premium’ listing segments with a single one will expose investors to “undue risk”, with “potentially significant implications” for pensioners, insurance and retail investors.
“We are particularly concerned by the introduction of a more permissive approach to dual class shares structures – with few shareholder protection safeguards – and the removal of shareholder votes prior to significant transactions and related party transactions,” Kerrie Waring, CEO of ICGN wrote.
Some of the signatories to the ICGN letter included Allianz GI, AXA IM, Baillie Gifford, Columbia Threadneedle Investments, Impax AM, Jupiter, Newton IM, Robeco and Scottish Widows.
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The network argued that, at a time when the FCA is “encouraging investors to play a greater, and more responsible, stewardship role” via voting and engaging with companies, “the imposition of weaker voting rights will have the opposite effect by inhibiting investor influence”.
Although ICGN said it understands the rationale behind the FCA’s push to reform the listings regime and bolster the attraction of the UK capital markets, it noted that European markets have faced the same predicament.
“We therefore challenge assertions of a need to roll back the UK’s corporate governance standards and restrain effective investor stewardship activities through these regulatory proposals,” Waring added.
“Such proposals risk undermining investor confidence to invest in UK assets.”
ICGN also noted it is “unclear” whether the reforms will help attract listings to the UK, but argued they are likely to “harm the UK’s reputation as a market with robust investor protection, high corporate standards, strong reporting regime and a stable policy environment”.
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In the letter, the network’s CEO highlighted how the UK’s reputation has been the base for overseas investors’ confidence, with the country’s corporate governance standards being used as a blueprint from regulators worldwide for their own domestic regimes.
Waring also pointed out how the proportion of UK companies listed on the London Stock Exchange held by overseas investors increased in recent years. Citing data from the Office for National Statistics, it said such proportion reached a record high of 57.7% in 2022, up from 53.3% in 2020.
“For such companies, being listed on the UK premium segment is a powerful signal that the company adopts the highest governance standards and is well-placed to thrive over the long-term. In the quest to grow and attract company listings, market integrity is something that must be preserved, and not diluted,” she added.
As a result, ICGN urged UK authorities to “assess the unintended and long-term consequences of the proposed measures”, before any action is taken, as they may “reduce the pool of institutional and retail investors willing to invest in UK-listed companies”.
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A spokesperson for the FCA told Investment Week: “We have been clear our proposals include a rebalancing of risk and we welcome feedback to make sure that we have the balance right.
“Our proposals are the most wide-ranging reforms to the UK’s capital markets in over three decades, driving forward changes to attract the brightest and best companies and ensure investors have the information they need.
“UK investors continue to buy across global markets where additional premium provisions do not exist, so it is not clear how large a role they play in investment decisions.”
The consultation into the UK listings regime reforms will close on 22 March 2024.