Investors have expressed concern over an erosion of shareholder rights outlined on Wednesday as part of the UK financial regulator’s planned review of UK listing rules.
Several UK fund managers have stated that proposed redesign by the Financial Conduct Authority, which would make it easier for companies to register for the London Stock Exchangewould dilute investors’ voting rights and expose them to riskier stocks.
The plans aim to boost London’s competitiveness in a bid to avoid a Exodus companies on the LSE, where the number of listed companies has fallen by 40% since 2008. This year alone, chipmaker Arm and Cambridge-based building materials group CRH have avoided the UK for register in New York.
The FCA’s proposals would remove the need for companies to have three years of audited accounts and merge the standard and premium London markets into one category, making listing more attractive to start-ups.
The changes would also be “more permissive” on dual-class shares, which give company founders greater voting rights than ordinary shareholders.
“The whole thing is a downgrading of hard-earned protections for shareholders, who provide their capital to sustain businesses,” said Richard Buxton, UK equity manager at Jupiter, who described the proposals as a “massive lowering of governance standards “.
He added: “Allowing changes such as dual-class actions is a massive step backwards. . . If it attracts companies without three years of audited accounts, for example, there will be scandals and disasters.
“What we need to fix this is not the erosion of shareholder rights, but reform to develop savings for UK equities. Defined contribution schemes, for example, should be strongly invested in UK equities.
Caroline Escott, chief investment officer at Railpen, which oversees £37bn of pension assets, said dual-class shares “strike at the heart” of “fair and democratic financial markets” by removing voting rights.
David Cumming, head of UK equities at Newton Investment Management, warned that individual investors in particular would lose some guarantees. “There is a consequence that if you do this you run higher risks as an investor. The problem is for [retail] investors who are not as well equipped, they could be vulnerable.
Meanwhile, Chris Cummings, chief executive of the Investment Association, which represents UK asset managers, said “appropriate safeguards need to be put in place to deliver a real benefit to pensioners and savers invested in listed companies”.
But other fund managers applauded the proposed changes. Stephen Yiu, director of the Blue Whale Growth fund, said the move could encourage more tech companies. “We have invested in the United States in technology stocks largely over the past few years. There is a huge ecosystem there. It’s great that there are now changes in the UK, but the argument is, are we too late? »
Danny Tricot, a lawyer at Skadden, defended the regulator’s decision. “The FCA should certainly ensure that disclosures are appropriate. However, it should not be CAF’s job to say that transactions . . . do not respect the rules and therefore cannot be undertaken. This only harms listed companies and, therefore, their shareholders and investors.
Simon Thomas, UK head of capital markets at Clifford Chance, also backed the regulator, saying “the benefits of reform outweigh the [the greater] risk [of failure]”.
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