The Sharp End: winter 2013 — time to check your relationship status

By Ben Mercer and Joanne Wallace

New measures intended to be implemented by the Financial Conduct Authority (FCA) will have a significant impact on companies with controlling shareholders who are premium listed and also on those companies considering joining the premium segment. They follow the regulator’s assessment of the premium listing regime over the last couple of years, as it considered how to bolster minority shareholder protection without risking damage to London’s attractiveness as a listing venue.

In its October 2012 paper ‘Enhancing the effectiveness of the Listing Regime’ (CP 12/25), the then Financial Services Authority (FSA) presented a package of measures for consultation. The FCA recently published CP 13/15, both a feedback document with a set of near final rules not open to comment and a consultation paper with draft rules on revised areas and new proposals. It is not only controlled companies that are affected by the consultation; a number of proposals are applicable to all premium listed companies and a couple apply to the standard segment. The FCA has calculated that there are some 50 premium listed companies that have a controlling shareholder or are structured in a way that would not comply with the new voting arrangements for premium listing issues.

Relationship agreements aren’t anything new. They continued to be used after the removal of the old controlling shareholder provisions from the Listing Rules in 2005. Although thought to be a valuable tool in regulating the relationship between a controlling shareholder and a new applicant, there were concerns that they were ineffective if not complied with and were often ignored after listing. Now, an agreement between a company and its controlling shareholder will be mandatory, although it will not need to be called a ‘relationship agreement’. In setting minimum requirements for their content and consequences for their breach, the hope is that they will become more credible. While rejecting requests for permanent ‘grandfathering’, the FCA is proposing a transitional period of six months for companies already listed to comply…

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