Brexit and the UK Listing Rules
On 3rd May 2023, The Times reported that UK’s Financial Conduct Authority (FCA) has proposed one of the most radical reworkings of the UK’s listing rules for 30 years in an effort to make the UK’s listings market more attractive for companies.
Reportedly, the FCA has proposed:
- The scrapping of the “primary listing” category of listed company;
- Concessions to enable founders of newly floated companies to retain more power by allowing different share classes with different voting arrangements;
- Removal of rules requiring so-called related party transactions to be put to the vote of all shareholders;
- The scrapping of the requirement for companies to show a three-year financial track record before listing; and
- The removal of the requirement for listed companies making acquisitions bigger than 25 per cent of their own market value to put the deal to a shareholder vote.
The FCA has acknowledged that these changes may mean, according to Nikhil Rathi, Chief Executive of the FCA, “ passing greater investment risk to investors and greater responsibility on to shareholders to hold the companies they own to account” and this may be a concern for some from a corporate governance as well as investment perspective.
Reportedly, the FCA’s proposals will go out to consultation in June 2023, with FCA officials expected to publish a reworked listing rules book later in 2023 or in early 2024.
Further details of the FCA’s proposals have emerged from the FCA’s consultation paper CP 23/10 and, whilst the main proposal comprises replacing the existing standard and premium segments with a single UK listing category for equity shares in commercial companies (ESCC), the following proposals ( amongst other things) arise from this:
- Removing eligibility rules requiring a three-year financial and revenue earning track record as a condition for listing, and no longer requiring a clean working capital statement;
- Modified eligibility and ongoing rules requiring that a company has an independent business and operational control over its main activities;
- Modified rules requiring listed companies to conclude a shareholder agreement with a controlling shareholder to ensure flexibility by moving to a comply or explain and disclosure-based approach;
- A more permissive approach to dual class share structures;
- Removing compulsory shareholder votes and circulars for significant transactions and related party transactions ( but not reverse takeovers). Other controls on related party transactions under the existing regime, including the requirement for a fair and reasonable opinion for larger deals, would be retained; and
- A single set of Listing Principles and related provisions.
Brexit , Retained EU Law and “Smarter Regulation”
On 10th May 2023, Kemi Badenoch MP, the UK Business and Trade Secretary, announced that the UK Government would no longer “sunset” all or most EU laws in force in the UK by the end of 2023. The Retained EU Law ( Revocation and Reform) Bill 2022/23 (“the REUL Bill”) would be amended accordingly so that a list of about 600 laws would be formally revoked by the end of 2023 with around 3000 more remaining indefinitely. ( In addition, reportedly another 500 pieces of retained EU law would be revoked under the Financial Services and Markets Bill and the Procurement Bill, when enacted.) In a “News Story” of the 10th May 2023, entitled “Smarter regulation unveiled to cut red tape and grow the economy”, the UK Government confirmed, however, that the REUL Bill would still “end the special status of retained EU law (REUL) by the end of 2023 ensuring that, for the first time in a generation, the UK’s statute book will not include reference to the supremacy of EU law or EU legal principles”.
In an editorial published on 13th May 2023, The Times said that Ms Badenoch “ was right to abandon a reckless pledge to scrap retained EU law”. A number of determined Brexiteers clearly take a different view.
Partly, some would argue, to soften the blow of this abandonment of the alleged pledge to scrap retained EU law wholesale, the ”News Story” also confirmed, however, a number of other statutory changes that the UK Government intended to enact, partly to improve “smarter regulation” and partly, it seems , to demonstrate to disgruntled Brexiteers that, notwithstanding the abandonment of the alleged wholesale “sunsetting” pledge, the UK Government was nevertheless intent on taking advantage of new Brexit freedoms to spur economic growth in the UK.
The proposed statutory changes specifically mentioned in the News Story include:
- Reducing “time-consuming and disproportionate reporting requirements for specific elements of the Working Time Regulations, while retaining the 48-hour week requirement and upholding our leading employment standards. This could save employers around £1bn a year. We are also simplifying regulations that apply when a business transfers to a new owner”; and
- “Promoting competition and productivity in the workplace by limiting the length of non-compete clauses to three months, providing more flexibility for up to 5 million UK workers to join a competitor or start up a rival business after they have left a position. The change will also provide a boost to the wider UK economy, supporting employers to grow their businesses and increase productivity by widening the talent pool and improving the quality of candidates they can hire.” This is a major legal change and the wording of the new law will need to be studied carefully to see whether it applies to sellers of businesses or companies and to exiting partners as well as to employees.
The protean effect of Brexit in changing times!
Brexit and Mexico
Mexico is a country known for its fire, its primary colours and its passion in a good way.
Two photos in The Times of 22nd May 2023 tend to confirm that impression – a picture celebrating the Day of the Charro and the Escaramuzas ( a female equestrian event) in Mexico City and a picture of a fashion show in Mexican City, themed around the memory of the Mexican artist, Frida Kahlo .
How do the UK and Mexico shape up on bilateral trade and investment between them in the post- Brexit era? As reported in UK Government guidance updated on 21st
September 2022, the UK and Mexico signed a trade continuity agreement which came into force on 1st June 2021. The continuity agreement reportedly includes provisions on:
- Trade in goods – including provisions on preferential tariffs, tariff rate quotas, rules of origin and sanitary and phytosanitary measures;
- Trade in services;
- Intellectual Property, including geographical indications; and
- Government procurement.
On 18th May 2023, the UK Department for Business & Trade (DBT) published one of its regular factsheets on trade and investment between the two countries and this showed that total trade in goods and services ( exports plus imports) between the UK and Mexico was £4.8 billion in the four quarters to the end of Quarter 4 (Q4) 2022, an increase of 25.3% or £967 million in current prices from the four quarters to the end of Q4 2021. Of this £4.8 billion:
- Total UK exports to Mexico amounted to £2.5 billion in the four quarters to the end of Q4 2022 ( an increase of 28.4% or £549 million in current prices, compared to the four quarters to the end of Q4 2021); and
- Total UK imports from Mexico amounted to £2.3 billion in the four quarters to the end of Q4 2022 ( an increase of 22.1% or £418 million in current prices, compared to the four quarters to the end of Q4 2021).
The DBT factsheet also recorded that Mexico was the UK’s 47th largest trading partner in the four quarters to the end of Q4 2022 accounting for 0.3% of total UK trade.
According to the factsheet, in 2021, the outward stock of foreign direct investment (FDI) from the UK in Mexico was £11.5 billion accounting for 0.7% of the total UK outward FDI stock and, in the same year, the inward stock of FDI in the UK from Mexico was £16.3 billion accounting for 0.8% of the total UK inward FDI stock.
In February 2023, UK Business and Trade Secretary , Kemi Badenoch MP, visited Mexico for high-level trade discussions to boost UK-Mexico trade and separately the UK is joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement of which Mexico is a founder member.
Mexico seems a country to watch!