UK Edition
Britain should use its newfound Brexit freedom to turbocharge the City after Brexit, according to the author of a landmark review into stock market rules.
Calling for a wide-ranging overhaul of regulations which would slash red tape and allow company founders to retain more power, Jonathan Hill said that the country cannot simply wait for the European Union to grant it access.
He said: “I think sitting here, doing nothing and hoping that somehow, one day the Europeans will give us what we want … is a route to being salami-sliced.”
Lord Hill - who served as EU commissioner for financial services until the Brexit vote - said ministers should get on with consulting on his ideas and that the EU is unlikely to grant financial institutions wide-ranging access to its market through the so-called equivalence regime.
His review makes 15 recommendations, including changes to listing rules so that company founders can hold more votes than other shareholders. Lord Hill said rules should be relaxed to attract the “blank cheque” companies that have boomed in New York to London.
The 86-page report will be considered by Chancellor Rishi Sunak alongside Wednesday's Budget.
It recommends allowing companies with a premium listing, eligible for inclusion in the FTSE 100 index, to adopt dual class structures under which founders’ shares carry up to 20 times the voting power of ordinary shares.
Holders of these more powerful shares would be required to sit as directors and would be permitted to use the additional voting power only to support their own election as directors or to block takeover bids that threaten their control. The extra voting rights would expire after five years.
The proposal is likely to prove controversial among shareholder groups which fear that ordinary investors' power will be reduced as a result.
Lord Hill said safeguards are needed, but added: “It makes no sense to have a theoretically perfect listing regime if in practice users increasingly choose other venues.”
He also recommended reducing the free float requirement so that a minimum of 15pc of shares must be in public hands, instead of the current 25pc requirement, with added flexibility for very large companies.
The review also recommends following other countries by loosening rules on special purpose acquisition companies (Spacs) - blank cheque firms in which investors buy shares, trusting their directors to subsequently identify and take over a private business. Spacs raised $63.5bn in the US last year compared to about £30m in the UK.
If London allows New York and Amsterdam to dominate the Spac market then British investors will be excluded from backing some attractive businesses, Lord Hill said.
The review also calls for the UK to tear up the EU’s prospectus regulation on the information companies must disclose when floating their shares or issuing new capital. Lord Hill said the rules have “led to a ballooning in [prospectuses’] size and a reduction in their usefulness”.
His proposals aim to reinvigorate the UK market, which accounted for only 5pc of stock market flotations globally between 2015 and 2020. The number of companies listed in London has fallen by 40pc from its 2008 peak.
Lord Hill also proposed an annual “state of the City” report by the Chancellor to Parliament so regulations are reviewed and updated as part of “everyday business”.
Rishi Sunak, the Chancellor, said he wants to move quickly to consult on the recommendations. He said: “The UK is one of the best places in the world to start, grow and list a business – and we’re determined to enhance this reputation now we’ve left the EU.”
The changes will require action by the Treasury and the Financial Conduct Authority (FCA), which is responsible for listing rules.
The FCA said it aims to publish a consultation by summer and introduce new rules by the end of the year subject to City feedback and approval from its own board.
The review, which follows a similar report on the fintech industry by Ron Kalifa last week, was broadly welcomed in the City, including by David Schwimmer, chief executive of the London Stock Exchange Group.
Mr Schwimmer said: “Continuing to evolve the UK listings regime is key to providing flexibility for companies who want to list in London while maintaining high standards of corporate governance.”