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
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
- Financial Information - including the frequency, quality
and time limits of financial reporting and the independence of
- 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.
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.
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
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.
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.
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.
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:
+44 (0)207 367 2736
+44 (0)207 367 3145