On 30 July 2002, the Financial Services Authority ("FSA") issued Discussion Paper 14 entitled "Review of the Listing Regime" to commence the widest ranging review of the Listing Rules in over ten years. The FSA's aim is to modernise and simplify the Listing Rules at a time when, in the wake of Enron and WorldCom, high standards of corporate governance and business integrity have never been more important.

The discussion paper aims to solicit the views of all interested parties on five specific areas, some of which are covered by recent EU directives. They are:

• Corporate Governance - the importance of which has increased following the collapse of Enron and concerns about the independence of non-executive directors.

• Corporate Communication -particularly the rules covering disclosure of price sensitive information and the publishing of forward-looking information by companies.

• Shareholders' Rights and Obligations - in particular, the rules ensuring equal treatment for shareholders (e.g. class 1 transactions).

• Financial Information - including the frequency, quality and time limits of financial reporting and the independence of auditors.

• The Sponsor Regime - to canvass views on whether the sponsor regime under the Listing Rules is effective.

This review is underscored by four EU directives which are in various stages of development (the Prospectus Directive, the Transparency Obligations Directive, the Investment Services Directive and the Market Abuse Directive). In particular, the Prospectus Directive is intended to harmonise the contents of every prospectus produced in the EU. It is stated to be a "maximum harmonisation" directive. If this were to be agreed, it would mean that the ability of the FSA to impose stricter rules on the contents of a prospectus for UK issuers would disappear.

There has been widespread criticism of the directives in the UK with various parties, including the Association of British Insurers, expressing concern that implementation of the directives will reduce the protections afforded to investors in the UK and lower the standards that UK companies are currently obliged to comply with.

Corporate Governance

The FSA has asked whether respondents feel the disclosure requirements imposed on issuers in the Listing Rules to state whether or not they have abided by the Combined Code is valuable and also whether the provisions of the Model Code still add value in the modern regulatory framework.

Corporate Communication

The FSA has sought views on whether the current exemption from the disclosure of price-sensitive information afforded by the Listing Rules should be broadened in order to encompass briefings to analysts, rating agencies and investment banks' salesmen, in certain defined situations, in order to help maintain orderly markets. In order to enable the FSA to ensure that the market's views are duly reflected in the EU negotiations, they will be accelerating this stream of the review's work.

In addition, the FSA are reviewing how they can improve the quality of forward-looking information given to the market. The Government has separately proposed that the largest UK companies should have to provide an Operating and Financial Review (see the article accessible by copying/pasting the following URL link: http: //www.law-now.com/law-now/press.cfm?id=4660), which is a narrative report on the company's business, its performance and future plans.

Shareholders' Rights and Obligations

The UK is the only European jurisdiction that provides detailed Listing Rules to reinforce shareholders' pre-emption rights. These include major transactions where, for a class 1 transaction or reverse takeover, shareholder approval must be obtained. There is some concern that UK companies will therefore be at a competitive disadvantage in relation to other European companies. The FSA is therefore seeking views on whether these rules should be retained.

Financial Information

The FSA is seeking views on whether the current deadlines for companies to publish financial reports should be shortened to ensure that the information is as up to date as possible. In addition, the FSA is contributing to the work being carried out by the Government in relation to auditor independence and, in particular, options such as rotation of auditors, regular re-tendering of contracts for audit work and a split between audit and non-audit services.

Sponsors

The FSA will review whether the requirements to have a sponsor adds an unnecessary burden to the overall cost of raising capital and, if the sponsor regime is retained, whether companies should be required to have a sponsor at all times or whether the current arrangements are sufficient. This is of particular relevance since the current Prospectus Directive imposes responsibility on the competent authority (i.e. the FSA) to approve each prospectus and to assure itself that it contains all necessary information to provide adequate protection to investors.

Revolution?

The FSA's aim is to ensure that London's reputation as Europe's premier financial centre is maintained, against a back drop that the Prospectus Directive may impose lower standards and prevent the FSA from imposing any additional requirements. The FSA may be hoping that the responses to this Discussion Paper will provide it with a mandate to resist any erosion of investor protection caused by the directives. Whatever the outcome, this review could lead to the most radical changes to the Listing Rules for over a decade.

For further information, please contact:

Charles Currier
Corporate Solicitor
charles.currier@cms-cmck.com
+44 (0)207 367 2736

or

Peter Bateman
Corporate Solicitor
peter.bateman@cms-cmck.com
+44 (0)207 367 3145