RegulationFebruary 12, 2024

Allocators Condemn UK Regulator’s Plan to Limit Investor Approvals

As it stands, shareholders must assent to M&A or related-party deals. But the FCA wants to ease listing requirements to stem companies decamping to New York exchanges.

Reported by Larry Light

Institutional investors, including CalPERS and CalSTRS, are opposing the British financial regulator’s proposal to eliminate investor approval on company financial moves.

The U.K. Financial Conduct Authority’s plan would strip requirements for a shareholder OK on “significant transactions,” such as for mergers and acquisitions and for related-party transactions, in which company officers or other affiliated people may benefit from the business’s financial moves.

The London-based International Corporate Governance Network, a watchdog group, and the Washington, D.C.-headquartered Council of Institutional Investors, along with a large group of allocators, have criticized the plan, saying it would weaken shareholder protections.

The latest objection to the FCA initiative came from the New Zealand Superannuation Fund ($42.8 billion) on Friday. In a statement posted on LinkedIn, the fund knocked the FCA plan as potentially endangering U.K. “corporate governance standards and shareholder protections.” The New Zealand fund, which joined an ICGN protest petition, argued that “investors have used [U.K. listing rules] as a gold standard when commenting on other markets’ governance and listing requirements, as well as in their direct engagement with companies.”

In addition to the New Zealand fund, 52 allocators and organizations have signed the anti-FCA petition, including the California Public Employees’ Retirement System, California State Teachers’ Retirement System and New York City Retirement Systems from the U.S.; the National Employment Savings Trust and Church of England Pensions Board from the U.K.; and the British Columbia Investment Management Corp. from Canada.

The FCA plan is aimed at making Britain’s “listing regime more accessible, effective, and competitive,” according to an agency statement. “The proposals could entail an increased possibility of failures, but the changes set out would better reflect the risk appetite the economy needs to achieve growth.”

The FCA plan has several other provisions to streamline the process for companies going public. The agency could not be reached for further comment.

The London Stock Exchange has suffered from U.K. companies departing for New York exchanges, which enjoy far greater access to capital and liquidity. Software maker Arm Holdings PLC and plumbing supplier Ferguson PLC are two recent examples of major departures from London: Arm went to Nasdaq in 2023, and Ferguson to the New York Stock Exchange in 2022.

In the U.S., public corporations typically must seek investor approval for M&A deals and related-party transactions (of more than 5% of net tangible assets), such as a corporate lease on a building owned by the CEO’s brother.