Consultation launched on changes to the UK listing regime

Policy statement on financial penalties

The Financial Services and Markets Act, which is expected to come into force this summer, gives the UK Listing Authority the power for the first time to impose a financial penalty on a listed company or an applicant for listing where that company has breached any provision of the Listing Rules. It also allows the UK Listing Authority to impose a financial penalty on a director where he was knowingly concerned in a breach. The Act requires the FSA to publish a statement of policy with respect to the imposition and amount of financial penalties. The FSAs proposed policy statement details the factors that will be taken into consideration in determining whether to impose a financial penalty and, if so, the level of penalty, such as the seriousness of the misconduct, the extent to which the contravention was deliberate or reckless and whether the person on whom the penalty is to be imposed is an individual.

Paul Geradine, FSA Director of Listing, said:

Financial penalties will be an important addition to the range of regulatory tools available to the UK Listing Authority to help it achieve its regulatory objectives. In those instances where the Listing Rules have been breached, financial penalties will be a very effective way of emphasising our view of the seriousness of these breaches both to those directly involved and to the market generally.

Update to the Listing Rules

The FSA has also proposed some changes to the Listing Rules that reflect recent developments in the market. These proposals continue to develop a framework which allows a wider range of companies to raise equity finance through admission to the Official List and provide investors with a more varied choice of products. The key proposals cover:

• Retail Covered Warrants. Views are sought on whether to establish a listing regime to allow, for the first time, retail covered warrants to be listed in the UK. These products entitle the holder to buy or sell an asset at a specified price during or at the end of a specified time period. To date, in the UK, it has only been possible to list covered warrants that were issued for sale to sophisticated investors but it has emerged that there may be significant demand for these products among retail investors. Subject to views received, a separate consultation paper will be published later this year setting out proposed listing rules.

• Strategic Investment Companies. In order to increase opportunities for early stage businesses to gain access to equity funding, the FSA is proposing to introduce rules which will allow strategic investment companies (SICs) which satisfy a number of important investor protection criteria to list without a three year trading record. These entities typically take minority stakes in other companies and exercise some control over the strategic development and management of those companies. As such, SICs are not passive investors and fall outside the scope of existing provisions which permit the early stage listing of investment entities.

• Scientific Research Based Companies. The desire to increase the financing opportunities for early stage businesses is also one of the drivers behind a review of the rules for scientific research based companies. Currently, companies must satisfy at least one of four significant commercial milestones in their development before they can be listed. The FSA proposes to remove this requirement and move to a more disclosure based system. Applicants will be allowed to demonstrate the maturity of their business through detailed disclosures in listing particulars of the relevant milestones they have achieved in the development of their business.

Comments on the FSAs proposals should be received by 16 March 2001.

Notes for editors

1. Consultation Paper 81, Proposed Changes to the Listing Rules, is available from the FSAs website under Publications (www.fsa.gov.uk/pubs/cp/81).

2. The FSA regulates the 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.