Rethinking the Listing Regime

He also set out the implications of the FSAs listing review which will be launched this summer, designed to identify which aspects of the UK regime are considered important by the market and consumers for capital raising and investor protection. This included discussion of the potential alternative routes available to the FSA and other authorities to maintain appropriate standards in the UK markets.

On the prospectus directive, Howard Davies said:

"In the interests of greater harmonisation and a single passport for issuers, the listing landscape will be changed profoundly. Indeed, the concept of listing as such is likely to disappear. The prospectus directive is still under lively debate in the European Council. But the Commissions clear intention is to ensure that a prospectus once vetted and approved in one member state would be valid in any other member state. Furthermore, the directive is therefore what we know in the jargon as a maximum harmonisation directive. This means that there will be no ability for a competent authority to impose prospectus disclosure requirements in addition to those specified in the directive. Again, to use the jargon, it will not be possible to impose super-equivalent provisions."

"And a likely consequence of the prospectus directive is that the UK concept of listing would be replaced by the notion of admission to trading on a regulated market. The admission standards would then be set by the selected regulated market."

"There are several super-equivalent provisions currently included within the listing rules in the UK. The major ones include the model code, shareholder notification, votes about major transactions and compliance to corporate governance codes. The prospectus directive means, again, if it is passed in its present form, that these aspects of the listing rules will fall away. The UK will then need to decide whether to develop those aspects in another part of the regulatory forest."

"My own view is that this is a very curious time to choose to dismantle a well-functioning feature of our regulation of corporate governance. In the aftermath of the Enron affair it is remarkable to think that we may soon lose the basis on which many corporate governance and disclosure provisions rest. Furthermore, the regime is one which our survey shows is attractive to both investors and capital raisers."

"The argument we hear is that regulatory competition cannot be allowed in the EU. Why not? Because, I am told, we would see regulatory arbitrage and a race to the bottom. That seems highly unlikely to me, especially at a time when investors are, not unreasonably, nervous about unconventional corporate structures and opaque accounts. Furthermore, our regime, tougher in these respects than others in the EU, has attracted mobile capital, far from repelling it. Nonetheless, absent a late change of heart - and the Commission are now preparing a revised draft - we need to reconcile ourselves to the fact that the listing rules can no longer be used in this way, and seek an alternative."

On the FSAs review of listing, Howard Davies commented:

"The prime aim of the review is, and always has been, to assess the existing rules and identify which of them remain important, and should be retained whether in precisely their present form, or amended in some way. In the case of some elements of the rules, that approach remains straightforward."

"But where a particular function which is identified as valuable may have to be dropped from the rules once the prospectus directive is in force, we need to identify an alternative way in which that element of the rules could be preserved. It may be possible to do so through company law, and there is a new Companies Bill in prospect. One option might be to give the FSA, or another body, separate statutory powers to impose obligations on UK companies whose securities are admitted to trading on a regulated market. There could be an alternative route through our conduct of business standards, or it may be that exchanges would wish to incorporate the provision in their admission to trading regime. Another possibility is that market participants themselves might see advantages in a voluntary code."

"In our forthcoming discussion paper we will present a clear taxonomy of the existing rules, identifying the areas in which change may be needed and, in particular, the areas in which the existing listing authority requirements will fall away."

Howard Davies concludes that if we want a modern, cost effective and market friendly environment for capital raising in London in the future, we have one major chance of getting things right, and this is it.

Notes for editors

1. Howard Davies was giving the keynote address at the FSAs Annual Listing Rules Conference at the Radisson SAS Hotel, Portman Square on 21 June at 9.45am.

2. The FSA is the principal regulator of the UK financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.