UK Listing Rules, Disclosure Guidance and Transparency Rules

Ban on use of restrictive contractual clauses

On 27 June 2017, the Financial Conduct Authority (FCA) published its final rules on the ban of restrictive clauses in investment and corporate banking engagement letters and contracts (PS17/13), following its consultation in CP16/31 and the FCA’s final report of the findings from its investment and corporate banking market study in October 2016.

With effect from 03 January 2018, firms are banned from entering into written agreements (such as a contract, mandate or engagement letter) with a provision that gives them a right to provide future primary market and M&A services to the client. This is to ensure that clients are not required to reward their relationship bank or corporate broker with future primary market services.

What is banned?

"Primary market and M&A services" are defined as services that are designated investment business or MiFID business and are:

• services to an issuer that comprise structuring, underwriting and/or placing an issue of shares, warrants, certificates representing certain securities or debentures, or
• advice and services relating to mergers and the purchase or disposal of undertakings.

The ban catches:

• "right to act" clauses - the right to provide any future primary market and M&A services, and
• "right of first refusal" clauses - the right to provide any future primary market and M&A services to the client before the client can accept any offer from a third party to provide those services.

What is allowed?

Excluded are "right to match" clauses where the firm has the right to be approached following a third party offer so that it can match that offer but the client ultimately decides which firm to select to provide the services. Provisions allowing a firm to pitch for future business and be considered in good faith alongside other providers for future business are also allowed.

Also excluded are future service restrictions in bridging loans, where the loan is provided on the expectation that the client will replace it with longer term financing, typically a bond issue, equity issue or a term loan.

Geographic scope

The scope of the ban is based on the application of COBS 1.1 and therefore:

• applies where the designated investment business or activities are carried out from a firm’s UK establishment
• prohibits a firm from entering into an agreement with these clauses - this includes agreements entered into by the firm’s UK establishment or its overseas branches but not its affiliates or subsidiaries, and
• applies irrespective of the client’s location.

Requirement for a Legal Entity Identifier (LEI)

With effect from 01 October 2017, new rules in DTR 6.2 require issuers to:

• apply to the FCA for a legal entity identifier (LEI)
• provide that LEI when filing regulated information, and
• classify regulated information when they file it using the classes and subclasses which are set out in DTR 6, Annex 1R. (Where more than one class or subclass applies, all of them should be notified.)

These rules are to enable searches for information on the European electronic access point (EEAP) by LEI, home Member State or type of regulated information. The EEAP will be a web portal accessible through European Securities and Markets Authority (ESMA's) website which will provide fast access to, and make available to end users, all regulated information filed by issuers under the Transparency Directive. The EEAP is due to be available from 01 January 2018.

Board diversity policy

On 04 November 2016, the FCA published the rule changes in response to its thirteenth quarterly consultation paper (CP 16/17). The changes include a new DTR 7.2.8A which requires issuers to disclose their board diversity policy in the corporate governance statement unless they fall within certain exemptions. This applies to financial years beginning on or after 01 January 2017.

Availability of information in the UK equity IPO process

On 26 October 2017, the Financial Conduct Authority (FCA) published its final rule changes which alter the timing, frequency and quality of information provided in connection with an equity Initial Public Offering (IPO) process and address conflicts of interest when analysts participate in discussions with a potential issuer pre-mandate stage (PS17/23). The new rules are substantially in the same format as proposed in CP 17/5 but with some amendments to reflect the responses received. (See Reforming the availability of information in the UK equity IPO process: FCA publishes new consultation paper for a summary of CP17/5.)

The rule changes come into effect on 01 July 2018 to minimize disruption to existing or prospective IPOs and to allow time for the industry guidelines relating to unconnected analysts to be developed. The rules will only apply in relation to an IPO if all of the key events governed by the new rules (namely analyst presentations, the publication of a prospectus or registration document and the release of connected research) take place after 01 July 2018.

The main changes are:

• a new requirement that an approved prospectus or registration document must be published and unconnected analysts must have had access to the issuer’s management before any connected research can be published, and
• clarification that "participating in pitches for new business" (in COBS 12) includes where an analyst interacts with the issuer’s management, shareholders or corporate finance advisers before the firm has accepted a mandate to carry out underwriting or placing services for the issuer and the firm’s position in the syndicate has been confirmed in writing.

These changes apply to both premium and standard listings. See FCA rule changes alter the availability of information in the UK equity IPO process for more information.

FCA review of UK primary markets

The FCA has published its final changes to the Listing Rules and new Technical Notes in response to its review of the effectiveness of primary markets (PS17/22), most of which are technical enhancements rather than fundamental changes and are predominantly in the same format as in the consultation (CP17/4). These changes took effect on 01 January 2018.

The FCA has also published its feedback statement to its discussion on the effectiveness of primary markets (FS 17/3) and is giving further consideration to certain points raised.

See FCA review of the effectiveness of primary markets: minor rule changes and further discussion for a summary of the Listing Rule changes and the topics the FCA has decided to give further consideration to.

FCA Quarterly consultation

On 01 December 2017, the FCA published its nineteenth quarterly consultation paper (CP17/39).  This includes the following proposed changes to the Listing Rules and DTRs:

• to add the words “or continuation” to Premium Listing Principle 6 (communication of information in such a way as to avoid the creation of a false market) to conform the wording to its predecessor, Listing Principle 4, and to ensure that it covers both the creation and the continuation of a false market, and
• clarification that information on a company’s diversity policy must be included in the corporate governance statement in its director’s report and that the statement can be in a separate report published with the annual report or in a document published on the company's website. 

Comments are due by 01 February 2018.

New premium listing category proposal for sovereign controlled companies

On 13 July 2017, the FCA published a consultation paper on its proposal to create a new premium listing category for sovereign controlled companies (CP17/21).

The paper is in response to the initial feedback received by the FCA to the question about the creation of a distinct international listing segment in its discussion paper on the effectiveness of the UK primary markets landscape (DP17/2) - see below. Areas of concern among respondents include the need to maintain standards for premium listed companies and avoid introducing lower standards of regulation on the grounds of nationality. As a consequence, the FCA is bringing forward a more targeted proposal in respect of those companies with a substantial level of ownership by a sovereign country which it considers will make the listing regime work better for such companies while ensuring standards of the regime remain high.

The consultation closed on 13 October 2017.

Primary Market Bulletin No.18

On 31 August 2017, the FCA published Primary Market Bulletin No. 18. This edition provides feedback on changes to the FCA’s Knowledge Base proposed in Primary Market Bulletin Nos. 16 and 17. The FCA is also consulting on further changes to the Knowledge Base, including three new Technical Notes relating to certain sponsor obligations under the Listing Rules. Comments were due by 11 October 2017.

Consultations still outstanding from earlier PMBs are amendments to:

• UKLA/TN/604.2 (PD advertisement regime) - have been postponed as it is likely to be affected by the FCA’s consultation paper on the availability of information in the UK equity IPO process
• UKLA/TN/541.2 - have been postponed as discussions on whether the DTRs apply to global depositary receipts is still ongoing at EU level
• UKLA/TN/202.2 (share buybacks with mix and match facilities) - as the FCA is still considering the feedback, and
• UKLA/TN/306.2 as a result of MAR implementation - has been postponed as a result of further work the FCA is undertaking in this area.

Potential impact

See the following articles:

New premium listing category proposal for sovereign controlled companies

FCA rule changes alter the availability of information in the UK equity IPO process

FCA review of the effectiveness of primary markets: Minor rule changes and further discussion

Mandatory requirement for LEIs to be introduced by FCA for regulatory announcements

Primary Market Bulletin No.18: new guidance on sponsor obligations proposed

Primary Market Bulletin No. 18: new technical notes confirmed and new sponsor technical notes proposed

Look out for

FCA response to outstanding issues and consultation in Primary Market Bulletin No. 17 and18

FCA responses to CP17/21 and CP 17/39.

More information

See our Equity Capital Markets page.