Will the proposed FCA reforms boost the London Stock Exchange?

The Financial Conduct Authority is understood to be considering a significant overhaul to the London Stock Exchange, the largest in over 40 years, with an announcement expected shortly.

While many commentators are beginning to express cautious optimism that we are seeing the early signs of a revival to the LSE. The recent IPOs of Air Astana, Raspberry Pi and Aoti, as well as the controversial but seemingly impending listing of Shein, provide a much-needed boost, but the markets have endured an incredibly challenging few years with liquidity restrained by Brexit, Covid, the Truss/Kwarteng mini-Budget and inflation.

By way of an example, several UK businesses have recently chosen to list elsewhere, including chip-maker Arm, gambling company Flutter and building materials manufacturer CRH, while LSE issuers raised just $1 billion (or c.£0.8 million) in 2023. As Julia Hoggett, the LSE’s CEO, recently pointed out, over the past three decades more than £1.9 trillion has been withdrawn from UK listed companies.

The proposed changes intend to boost the attraction of London listings by easing regulatory burdens to make it easier for companies to list.

There has also been speculation that a broader set of new rules will boost competitiveness by improving the quality of equity research, refreshing corporate governance rules and making the market more accessible for non-professional investors. LSE issuers’ ability to recruit and retain high-calibre C-suite talent will also be given a boost through the relaxation of executive pay restrictions.

Nikhil Rathi, CEO of the FCA, recently described the rules as ‘potentially very far-reaching’, and that they could create ‘great opportunity’ for companies seeking to list. However, Rathi also acknowledged that ‘we do need to accept that there is a risk of more things going wrong’, with potential investor backlash following the reforms a very real possibility.

While concerns have been raised by groups, including the Local Authority Pensions Fund Forum, that the reforms lack credibility and there is a danger that investors may be less protected, they are likely to provide a much-needed boost to what has been an ailing stock market in the last 5 years. More clarity is needed regarding the specifics, and whether this will be enough to compete with the likes of New York, Nasdaq or Hong Kong remains to be seen.