UK Listing Rules and DTRs after Brexit

At 11pm (UK time) on 31 December 2020 (known as “IP completion day), the transition period ended and the UK entered into a new trading relationship with the EU under the EU-UK Trade and Cooperation Agreement ("TCA"). The TCA came into force on 1 May 2021.

Although the TCA represents a fundamental shift in the EU-UK relationship, it does not deal with the UK listing, transparency and prospectus regime. The UK has therefore implemented the changes it proposed if there was a no deal exit. The changes took effect from IP completion day.

Set out below are the main changes as at 1 January 2021. Other changes have been made since that date,  for example to the rules for special purpose  acquisition companies (see The new UK SPAC regime -- not following the crowd)  and changes to free float requirements and dual class share structures on the premium listing segment.(see Another step towards reform). The FCA is currently consulting on a wholesale review of the UK Listing Regime (see FCA publishes discussion paper on the purpose of the UK listing regime) and we are expecting a consultation on secondary capital raisings in June 2022..

Final rules

On 29 March 2019, the FCA published final amendments to the Listing Rules, Disclosure Guidance and Transparency Rule (DTRs) and Prospectus Rules and guidance that apply now the UK has left the EU (the Exiting the European Union: Listing, Prospectus and Disclosure Sourcebooks (Amendments) Instrument 2019).

On 1 October 2020, the FCA published further amendments:

• The Exiting the European Union: Handbook (Amendments) Instrument 2020 (FCA 2020/47)
• Exiting the European Union: Handbook (Amendments) (No 2) Instrument 2020 (FCA 2020/48)
• EU Exit ("IP completion day" and Time-Related Amendments) Instrument 2020 (FCA 2020/60), and
• Exiting the European Union: Miscellaneous (Amendments) (No 2) Instrument 2020 (FCA 2020/58).

The FCA has also published Primary Market Bulletin No. 22 and Primary Market Bulletin No. 32 which summarise these key changes.

General approach

When making changes to the FCA Handbook (as a whole) and the Binding Technical Standards (BTS), the FCA has taken the following approach:

• in general, it treats the EU and its member states in the same way as it treats non-EU or third countries, although there will be instances where it will diverge from this approach
• references to EU law that no longer apply after exit have been removed and replaced with references to UK law
• passporting provisions that no longer apply after exit have been removed, as have references to "home" and "host" state regulators
• references to European institutions (such as the European Commission) have been removed or replaced with UK ones, and
• references to "other member/EEA states" and "other competent authorities" have been removed.

EU guidelines, recommendations, opinions and Q&A produced by, among others, ESMA (Level 3)

The FCA expect firms and market participants to continue to apply ESMA Guidelines to the extent that they remain relevant, as they did before IP completion day. Market participants will need to interpret the materials sensibly and in light of the Brexit-related amendments to UK law. Queries regarding Level 3 material can continue to be raised with the FCA and has a repository of all EU Level 3 material in effect at IP completion day on its Handbook website. See FCA guidance on its approach.

FCA Knowledge Base and Handbook forms

Non-FCA Handbook guidance (such as Dear CEO letters, procedural and technical notes in the FCA Knowledge Base) has not generally been amended but is still relevant and market participants are expected to sensibly and purposively interpret the guidance. The FCA is also not making changes to forms at this stage but has set a default approach to interpreting certain EU-based references. References to UK legislation should be read as references to the legislation as amended under the EUWA.

Main changes to Listing Rules

The main changes include the following:

Free float requirements

Instead of applicants and listed companies having to show that at least 25% of the shares (or any such other level that has been agreed) are in public hands in one or more EEA states, shareholders in any jurisdiction will count towards the free float. The FCA concluded (in CP 18/36) that replacing the EEA with the UK would have been too restrictive and it has therefore removed any reference to “EEA states” instead. This applies to premium and standard listings of equity shares and depositary receipts.

Admission to trading

Shares will be admitted to trading on a UK regulated market instead of an EU regulated market operated by an RIE. References to “regulated market” in the Listing Rules are now to a regulated market which is a UK RIE (which excludes recognised overseas investment exchanges).

Non-UK companies

Shares of an applicant incorporated in a third country (which replaces applicants incorporated in non-EEA states only) that are not listed either in its country of incorporation or in the country in which a majority of its shares are held, will not be admitted to listing unless the FCA is satisfied that the absence of the listing is not due to the need to protect investors.

Appointment of UK registrar

All overseas companies with a standard listing must appoint a UK registrar. The requirement for there to be 200 or more UK resident shareholders or 10% or more of shares are held by UK residents has been removed.

Main changes to DTRs

The main changes include:

Transparency requirements and vote holder notifications

Scope: Pre-IP completion day DTR 1A and Chapters 4 to 6 of the DTRs applied to issuers with securities admitted to trading on a regulated market in the EU and for which the FCA was the home competent authority. DTR 5 also applied to issuers admitted to a UK 'prescribed' market (such as AIM).

After IP completion day, these chapters apply to issuers with securities admitted to trading on a UK regulated market, wherever the home competent authority is. The home/host state distinction has been removed.

This means that an issuer on, for example, the Main Market, whose home competent authority is not the FCA is now subject to these rules. Consequently, issuers that are required to comply with corresponding requirements in a remaining EEA member state are no longer exempted from complying with the DTRs.

Issuers admitted to trading on a regulated market in the EU and whose home member state was the UK must choose a new home member state.

Major shareholding notifications: DTR 5.1.2R requires a person to notify an issuer if the percentage of voting rights they hold in the issuer reaches, exceeds or falls below 3% or any whole percentage point above 3%. They also have to notify any direct and indirect holdings of financial instruments that are deemed to give voting rights in an issuer. The FCA has published an indicative list of derivatives and non-equity financial instruments that are subject to the notification requirements in DTR 5. This replaces the previous list published by ESMA, but is effectively identical to it.

DTR 5.5.1R and 5.6.1R  require issuers to notify the market of certain changes to their capital structure. DTR 5.8.12(1) requires non-UK issuers to notify the market of any changes to any substantial holdings of their shares notified under DTR 5.1.2R above.

The FCA has decided that the notification regimes in the United States, Japan, Israel and Switzerland are equivalent and so issuers incorporated in these jurisdictions are exempt from  the requirements in DTR 5.5.1R, DTR 5.6.1R and DTR 5.8.12R(2). See Equivalence of non-UK regimes, updated on 5 January 2020. Issuers incorporated in Switzerland are also exempt from certain information requirements in DTR 6.

Consolidated accounts

Issuers must now use UK-adopted International Financial Reporting Standards (IFRS) to prepare their consolidated accounts, instead of EU-adopted IFRS. After IP completion day, issuers from third countries (which include issuers from the EEA) continue to be able to use other accounting standards if these have been deemed equivalent to UK-adopted IFRS, and the FCA have granted an exemption for that standard.

The UK government issued equivalence decisions that EU-adopted IFRS are considered equivalent to UK-adopted IFRS for the purposes of preparing financial statements under the Transparency Directive and to prepare a prospectus under the Prospectus Regulation. The FCA has now confirmed that an issuer can continue to draw these  financial statements up using EU-adopted IFRS, IFRS adopted by the International Accounting Standards Board or generally accepted accounting principles in the United States, Canada, the People's Republic of China, Japan or South Korea. See Equivalence of non-UK regimes, updated on 5 January 2020.

Audit committees

Pre-IP completion day an issuer had to have an audit committee, unless it was a subsidiary undertaking and its parent undertaking was required to have an audit committee under the DTRs or certain requirements in another EEA member state.

After IP completion day, this exemption is only available if the parent undertaking must have an audit committee as required by DTR 7.1. The other limb of the exemption continues to apply for any financial year beginning before IP completion day.

EEA auditors

Pre-IP completion day UK traded non-EEA issuers could use an EEA auditor to provide the audit report for their annual financial statement. After IP completion day, EEA auditors become subject to the same rules as third country auditors and will have to register with the FCA.

Non-registered EEA auditors can audit results for financial years beginning before IP completion day, but they will need to register for any financial years beginning on or after that day.

Dissemination of information

Pre-IP completion day issuers could choose whether to disseminate information using a Primary Information Provider (PIPs) or an incoming information society service established in an EEA state. After IP completion day, only PIPs can disseminate the information.

Corporate governance statements

After IP completion day, an overseas company with a premium listing must comply with the requirements in DTR 7(2) about corporate governance statements, regardless of whether it already complies with similar requirements imposed by another EEA state. Any regulated information must also be disclosed in English.

Material related party transactions

All non-UK incorporated issuers must comply with the rules relating to material related party transactions (in DTR 7.3) as there is no longer an exemption for issuers that comply with similar requirements in another EEA state.

Issuers must use the definition of "related party" in UK-adopted IFRS instead of EU-adopted IFRS.