Newsletter for primary market participants
December 2024 / No. 53.
About this edition
In this edition we:
1. Consult on proposed changes to guidance in our Knowledge Base for the listing regime. This follows the implementation of the new UK Listing Rules (the UKLR[1]), which came into force on 29 July 2024 (PS24/6[2]). Our proposed changes include:
- Re-consulting on 2 technical notes we originally consulted on in PMB 48[3], and finalising 3 technical notes on the sponsor regime that we consulted on in PMB 50[4].
- Consulting on new proposed amendments to 43 technical and procedural notes.
- Consulting on deleting 1 technical note and 1 procedural note.
2. Provide feedback on our consultation in PMB 50[4] and subsequent changes to the Knowledge Base[5] on the UKLR.
3. Highlight our recent consultation to update Handbook references to the UK Corporate Governance Code 2024.
What's new
We are continuing to update technical and procedural notes in our Knowledge Base[6]. The updates reflect recent changes to the listing regime and feedback we have had on the sponsor regime. We started this process with PMB 48[3] and have continued with PMBs 50[5] and 51[5]. It is in line with the phased approach we said, in PMB 48[8], we were going to take.
In this PMB, we address outstanding items from PMBs 48–51 and consult on further changes to our technical and procedural notes. We propose changes to technical and procedural notes both for the sponsor regime and non-sponsor topics.
Our phased approach means some technical and procedural notes in our Knowledge Base[7] still refer to the pre-July 2024 Listing Rules. For any notes in the Knowledge Base that have not been finalised, we expect firms and other market participants to interpret Listing Rules references in light of the UKLR now in force.
We are also consulting on the new Public Offers and Admissions to Trading Regulations regime (CP24/12[4]). We have sought views on updates to our technical note guidance on prospectus disclosure. Until the new regime and any corresponding new guidance comes into force, the current guidance continues to apply.
Consultation feedback, re-consultation and changes to the Knowledge Base following PMB 48 and PMB 50
PMB 48
UKLA/TN/307.1 and UKLA/TN/710.1
In PMB 48[11] we consulted on changes to TN 307 (Aggregating transactions)[3] and TN 710 (Sponsor Services: Principles for Sponsors)[4]. We did not finalise TN 307 in PMB 51[10] given the changes from the draft UKLR to the final UKLR. We also received feedback following PMB 48[14] about typos and the clarification/correction of drafting on the class test threshold for significant transactions. We are reconsulting having amended the note to reflect this feedback and propose further amendments to reflect the final rules introduced on 29 July 2024. The marked up version shows amendments to the version of the technical note we consulted on in PMB 48[18].
We are reconsulting on TN 710, as we propose to further amend it to reflect feedback to our earlier consultation (GC24/2: Primary Market Bulletin No. 48[-2]), and after further consideration of how the note could be made more helpful with practical examples.
Specifically, one trade body suggested we reinstate an updated version of an example we had removed relating to related party transactions. One market participant also considered there was scope for confusion around when a sponsor service might apply in relation to class tests. This follows changes to the UKLR to remove sponsor services relating to significant transactions. Additionally, to remove sponsor guidance obligations for transactions that are or may be a significant transaction or related party transaction.
So we have amended TN 710 to include additional examples that should help to clarify when a sponsor service may exist and when the associated sponsor principles apply. It is not our intention to capture matters as sponsor services through our interpretation of the definition of ‘sponsor services’, where the policy intention of the proposals we implemented in PS24/6[2] was explicitly to exclude those matters. We have also changed the order of the items in this note to aid understanding. The marked-up version shows amendments to the version of the technical note we consulted on in PMB 48[19].
PMB 50
In PMB 50[9], we proposed changes to the guidance for sponsors. This included introducing 2 new guidance notes and amending our guidance note on sponsor record keeping. This followed feedback, primarily from sponsors, during the Primary Market Effectiveness Review consultations. Having considered feedback to PMB 50, we are making the following changes to the Knowledge Base:
FCA/TN/717.1 – Sponsors: Record Keeping Requirements[-8]
We are finalising this note without further amendment. One industry body acknowledged that the amendments to the technical note were useful, but unlikely to lead to significant changes in practice given the likely focus on sponsor records during sponsor reviews. We anticipate adding to the Q&A section of the technical note, as we identify further pragmatic steps sponsors can take to make sure record keeping is proportionate and sufficient for FCA reviews. We hope this will lead to changes of approach where appropriate.
FCA/TN/723.1 – FCA reviews of sponsor services[-7]
We are finalising this note without further amendment. One industry body commented on our approach to sponsor reviews more generally. They asked for better notice of our reviews and shorter, more thematic reviews. We are considering this feedback as part of developing our supervisory approach to sponsors.
FCA/TN/722.1 – Responsibilities of a sponsor: specialist due diligence[-6]
One industry body welcomed us confirming that sponsors are not expected to be experts in everything. But they pointed out that maintaining the current form of the sponsor declarations limited the usefulness of the guidance in this technical note. The same respondent also fed back that our guidance underestimates the limitations of a sponsor, as a reasonable professional with skill and experience in corporate finance, to be able to challenge third party diligence in technical areas.
We have been clear through our Primary Market Effectiveness consultations that we value the scrutiny and challenge that sponsors undertake as part of forming the reasonable opinions they give us. We also believe we are clear in FCA/TN 722.1- Responsibilities of a sponsor: specialist due diligence[26] that there are inherent limitations in the assurance a sponsor can give in specialist technical areas outside of their core competence. We consider it is clear that if a sponsor relies on a highly specialised form of expert reporting, they may be less competent to give detailed challenge. We have also been clear that where a specialist report provides a sponsor with the assurance it is seeking and where the sponsor has no concerns or questions about the report, it is reasonable for the sponsor to simply record this judgement. As such, we are finalising this note without further amendment.
Consultation on proposed changes to the Knowledge Base
We propose some material changes to the following Technical Notes:
UKLA/TN/209.3- Listing Principle 2 Dealing with the FCA in an open and cooperative manner[-5]
We propose to amend this note to reflect the recent changes to the listing regime. We also propose to add further guidance clarifying that Listing Principle 2 also applies where an issuer becomes aware that they are no longer able to comply with a continuing obligation in the UKLR.
UKLA/TN/401.1- Acquiring assets during investment trust roll-overs[-4]
We propose to add detail to this note on common types of transaction structures where closed-ended investment funds are acquiring assets by a scheme of reconstruction. These additions are not intended to change the substance of the note’s guidance. We have also updated the note to reflect that a shareholder vote is no longer required for significant transactions under the UKLR.
Primary Market/TN/423.2 – Open-ended investment companies[-3] and UKLA/TN/425.1 - Open-ended investment management agreements and transfer restrictions[-2].
We propose to combine these 2 technical notes into TN 423 to provide 1 note for all OEIC related topics. We also propose to amend the note to bring it fully up to date on the current rules for OEICs, in particular for documentation requirements. Finally, we propose some amendments to the section on transfer restrictions to align guidance for both UK and non-UK OIECs.
We are also consulting on consequential changes to the following existing technical & procedural notes:
We also propose to update several of our technical and procedural notes to reflect the most recent changes to the listing regime. And to update them for historical changes that have not yet been reflected. This includes removing references to the Prospectus Directive, reflecting changes brought about by Brexit and historical changes to our processes.
The amendments do not affect the substance of the guidance in these notes.
The amendments we propose include:
- Consequential changes from the implementation of the UKLR on 29 July 2024, eg
- updating of rule references
- deleting guidance that refers to rules that no longer exist
- Removing remaining references to the Prospectus Directive.
- Removing or updating references to since repealed or removed sections of legislation and Handbook provisions (eg FSMA, PR Regulations, FEES, PRR).
- Consequential changes following Brexit in relation to the Prospectus Regulation, which had not yet been reflected.
- Reflecting updates to FCA’s operational objectives (FSMA 2000 1B(3)(c)).
- Updating MiFID II reference to UK MiFID Framework.
- Adjusting drafting to more closely follow the actual wording of a rule.
- Reflecting historical changes to our processes, including to DEPP.
- Simplifying drafting to improve clarity and accessibility.
Technical and procedural notes on the sponsor regime
UKLA/PN/909.2 – Sponsor firms - Ongoing requirements during re-organisations[-1]
UKLA/PN/910.2 – Additional powers to supervise sponsors [0]
FCA/PN/912.1 – Sponsor Service Enquiry Line[1]
UKLA/TN/701.3 – Identifying and managing conflicts[2]
UKLA/TN/706.1 – Sponsors: Innovative structures and schemes[3]
UKLA/TN/716.1 – Sponsors: joint sponsors - communications with the FCA[5]
Technical and procedural notes on the listing regime other than the sponsor regime
Category: Procedural Notes
Primary Market/PN/901.4- Eligibility process[6]
UKLA/PN/902.2- Listing securities via final terms[7]
Primary Market/PN/903.4- Review and approval of documents[8]
Primary Market/PN/907.3- Block listings [9]
UKLA/PN/911.1- Substitution of issuer of debt securities[11]
FCA/PN/913.1- Schemes of arrangement[12]
Category: Eligibility for listing
UKLA/TN/101.2- Restrictions on transfer[13]
Category: Governance and conduct
FCA/TN/202.2- Share buybacks with mix and match facilities[14]
UKLA/TN/204.2- Ratification circulars[15]
Primary Market/TN/205.2- Circulation and publication of unapproved documents [16]
UKLA/TN/207.2- Equality of treatment - Premium Listing Principle 5[17]
UKLA/TN/208.1- Long-term incentive schemes [18]
Category: Transactions
UKLA/TN/305.2- Hostile takeovers [20]
UKLA/TN/310.1- Share buybacks - novel/complex approaches and Premium Listing Principle 5[21]
UKLA/TN/311.1- Discounted share issues and standard of disclosure in circulars[22]
FCA/TN/315.1- Quantified Financial Benefits Statements [23]
Category: Working capital statements
Primary Market / TN / 321.2- Working capital statements and risk factors[24]
Category: Closed-ended investment funds
Primary Market/TN/403.2- Class testing changes to an investment management agreement[26]
Primary Market/TN/405.1- Investment management agreements and independence of the board[28]
UKLA/TN/407.1- Closed-ended investment funds with multiple share classes [29]
UKLA/TN/408.1- Eligibility of closed-ended investment funds[30]
Primary Market/TN/409.2- Master-feeder structures[31]
UKLA/TN/410.1- Definition of 'investment manager'[32]
Category: Specialist companies
UKLA/TN/421.1- Real Estate Investment Trusts[33]
Category: Periodic financial information
UKLA/TN/502.2- Preliminary statement of annual results[34]
Category: Regulatory announcements including inside information
Primary Market/TN/522.3- Disclosure of 'lock-up' agreements[35]
Category: Prospectus content
UKLA/TN/624.2- Operating and financial reviews (OFR)[36]
Category: ESG and Sustainability
Primary Markets/TN/801.2- Disclosures in relation to ESG matters, including climate change[37]
Primary Market/TN/802.1- TCFD aligned climate-related disclosure requirements for listed companies[38]
We propose to delete the following technical and procedural notes, as they are obsolete following the UK’s exit from the EU:
Category: Procedural Notes
Primary Market/PN/905.3- Passporting[39]
Category: Prospectus content
Primary Market/TN/630.2- Choice of home member state under the PD[40]
Cost benefit analysis
We did not include a cost benefit analysis (CBA) for the proposals in PMB 48[22] and 51[17], as we undertook a CBA in CP23/31[34]. The changes to our guidance set out in PMB 48 and 51 were a direct consequence of CP23/31. Similarly, the changes to our guidance in this PMB are a direct consequence of PS24/6[21] and the UKLR. As explained in PS24/6, we have not made changes to the CP23/31 proposals in a way that materially affects the CBA’s analysis and findings. So the CBA published in CP23/31 still applies. We believe that the changes to our guidance ensure consistent and clear regulatory expectations on obligations for market participants.
Secondary international competitiveness and growth objective
The Financial Services and Markets Act 2000 as amended by the Financial Services and Markets Act 2023 requires us to consider the international competitiveness of the UK economy (in particular, the financial services sector), and its growth in the medium to long term.
The changes to our guidance in this PMB are a direct consequence of PS24/6 and the UKLR. As we set out in PS24/6, we consider our final rules should deliver more proportionate regulation and enable our markets to be competitive in attracting listings and promoting growth of UK listed companies. This would in turn support the wider UK economy and returns for investors.
Legislative and Regulatory Reform Act 2006 (LRRA)
We consider that the final guidance has regard to the 5 LRRA principles, that regulatory activities should be carried out in a way which is:
- transparent
- accountable
- proportionate
- consistent
- targeted only at cases in which action is needed
We have had regard to the Regulators’ Code, particularly the requirement for proportionate and targeted regulatory activity. The aim of the amendments to the Knowledge Base in this PMB is to update guidance to issuers and primary market practitioners.
Equality and diversity
Between the publication of PMB 51 and this PMB, we continued to consider the equality and diversity issues that may arise from our proposals and our final guidance. We do not consider that our final guidance materially impacts any of the groups with protected characteristics under the Equality Act 2010.
The Treasury’s remit letter
As mentioned above, the proposed changes to our guidance in the Knowledge Base set out in this PMB are a direct consequence of the policy development set out in PS24/6 and the implementation of the UKLR. The policy on which our proposals are based was therefore started and completed before the Treasury published, on 15 November 2024, a remit letter under section 1JA FSMA 2000. This letter sets out new recommendations about Government policy which the FCA should consider. Our view is that the intended effects of the proposals are in line with the remit letter’s recommendations. Further, we will have regard to the remit letter when finalising and issuing the guidance.
Our recent consultation to update Handbook references to refer to the UK Corporate Governance Code 2024
We have recently published CP24/26: Quarterly Consultation Paper No. 46[34], Chapter 6 of which includes our proposed changes to update references to the new 2024 edition of the UK Corporate Governance Code in the UK Listing Rules and the wider Handbook. We welcome comments on our proposals by 13 January 2025. Our final rules will not be in place in time for 1 January 2025, when the 2024 version of the UK Corporate Governance Code (the Code) replaces the current version of the Code (the 2018 edition). Subject to feedback to our consultation and FCA Board approval, we will seek to make the proposed changes to our Handbook as soon as possible. Until the final rules are made, the FCA’s Handbook will continue to reference the 2018 edition of the Code.
In practice we expect issuers subject to the Code will already be familiar with the changes to it as a result of FRC’s consultation process, and will be making the necessary changes to amend their governance arrangements as needed from 1 January 2025. We would encourage issuers to adopt the 2024 Code from 1 January 2025, or at the earliest opportunity.
We want to hear what you think
Please send your comments on our proposals i) on TNs and PNs by 23 January 2025, and ii) to update Handbook references by 13 January 2025 to [email protected].