Contributed by Slaughter and May.
1. Market Overview
1.1. Market Trends
London has long been considered one of the preeminent locations for a company considering listing equity or debt securities. The London Stock Exchange’s (LSE) Main Market is the world’s most international market for the admission and trading of equity, debt, and other securities, and despite the difficult market conditions that have resulted from Russia’s invasion of Ukraine and the challenges presented by Brexit, London has retained a competitive market position in 2022 in terms of initial public offering (IPO) deal count, debt listings and deal volume as compared to all other European listing venues. The city’s deep and knowledgeable pool of institutional investors and stable and developed legal environment have laid the foundation for a thriving venue for primary and secondary offerings.
London’s equity and debt markets are relatively sector-agnostic and attract companies from a broad range of industries and geographies. In 2021, over 120 companies were listed on the LSE, raising GBP 16.8 billion: this was the strongest year for IPO capital raising since 2007 and the highest number of IPOs since 2014. Notable examples include Trustpilot, Darktrace, Wise, Oxford Nanopore Technologies, Dr. Martens, Deliveroo, Bridgepoint, Alphawave IP, and Moonpig. In 2022, equity capital markets were badly affected by the Ukraine crisis, and very few IPOs were executed; but there are strong indications that the IPO market will return in the second half of 2023. In relation to secondary equity fundraisings, after a large number of Covid-related fundraisings in 2020, there was a relatively modest number of large fundraisings in 2021 and 2022, although quite a few companies raised smaller amounts by placing shares with selected institutional investors. Taking a longer view, the number of companies coming to list in London has been declining for several years – due partly to companies staying private for longer, reduced appetite for listed company shares from traditionally long-only public investors, listed companies being taken private through takeovers and other factors – but various reforms have already been introduced or are in progress that is designed to address these problems. These include the proposed reforms to the prospectus regime described below.
From a debt capital markets perspective, in 2022, 853 bonds were issued on the LSE with USD 351 billion in debt capital raised. These figures represent a slight increase in the number of bonds issued compared to 2021, but a significant decrease in the volume of debt capital raised year-over-year due to the challenging economic environment. That being said, 2021 and 2022 have seen a sizeable increase in the LSE’s Sustainable Bond Market (SBM) with over USD 70 billion raised in 2021 and over USD 53 billion raised in 2022. In particular, there were milestone sustainability-linked bonds issued by two sovereign issuers in 2022. In March 2022, the Republic of Chile issued the world’s first sovereign sustainability-linked bond, a USD 2 billion 4.35%. Note due March 2042 listed on the LSE’s International Securities Market (ISM) and SBM. The Republic of Uruguay also listed its debut USD 1.5 billion 5.75%. sustainability-linked bond due 2034 on the ISM and SBM in October 2022, becoming the second sovereign to issue a sustainability-linked bond. Moreover, listings on the ISM have continued to grow with over USD 42 billion raised (265 bonds) in 2022. The ISM also continues to have a diverse global reach with debt listings from over 29 countries.
1.2 Upcoming Reform of the UK Prospectus Regime
Following the end of the Brexit transition period on December 31, 2020 (the Brexit Transition Period), the UK has its own prospectus regime which as at the date of this Guide largely mirrors the EU prospectus regime. A key regulatory change expected in the coming year is the overhaul of the UK prospectus regime which will result in greater regulatory divergence between the two regimes. The main changes under the proposed UK prospectus regime include that the regulation of admission of securities to trading on a UK regulated market will be separated from the regulation of public offers of securities and the UK Financial Conduct Authority (the FCA) will be responsible for specifying the circumstances when a prospectus is required if securities are to be admitted to trading on a UK regulated market, the information it must include and the process for getting it approved and published.
2. Overview Of The Local Stock Exchange And Listing Segments (Markets)
The LSE is the primary stock exchange in the UK, although there are also a small number of companies listed on other exchanges, including NEX Exchange and Euronext London (which is primarily used in cases where a company is pursuing a dual IPO on one of Euronext’s other European exchanges).
The LSE operates four main markets: the Main Market, the Alternative Investment Market (AIM), the Professional Securities Market (PSM), and the ISM. Equity securities are primarily listed on the Main Market or the AIM. Debt securities are primarily listed on the Main Market and the ISM with listings on PSM becoming increasingly infrequent.
2.1. Regulated Markets
The Main Market is the LSE’s flagship market and is a “regulated market” under Regulation (EU) No. 600/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (EUWA) (UK MiFIR). Issuers seeking admission to trade securities on the Main Market must ensure that the prospectus is approved by the FCA and that the securities are admitted to the FCA’s Official List.
2.2. Non-Regulated Markets
AIM operates as an exchange-regulated market or a multilateral trading facility under UK MiFIR, rather than a regulated market, and currently qualifies as an EU SME Growth Market (which confers on companies traded on such markets certain relaxations under the prospectus and market abuse regimes). AIM has a less prescriptive regulatory and governance regime. AIM is the preferred London market for many smaller and/or growth companies looking to list equity securities. Issuers seeking admission to AIM are not required to seek admission to the FCA’s Official List.
The PSM and the ISM are also exchange-regulated markets or UK multilateral trading facilities (UK MTFs) for the purposes of UK MiFIR. AIM, the PSM, and ISM are outside the scope of the UK rules implementing the Transparency Directive (Directive 2004/109/EC), however, issuers with securities admitted to trading on AIM, the PSM, or ISM are subject to the UK Market Abuse Regulation (which is retained EU law and has applied in the UK since the end of the Brexit Transition Period when it replaced the EU Market Abuse Regulation (Regulation (EU) 596/2014) (UK MAR)).
Like the Main Market, the application for admission to trading on the PSM is a two-stage parallel process in which application must also be made to the FCA for approval of the listing particulars and admission of the securities to the FCA’s Official List.
The ISM was established in 2017 to provide a simplified admission process for issuers seeking to either restrict their offering to qualified investors or offer a high denomination of debt securities, which therefore affords them the ability to rely on certain exemptions in the prospectus regime. Admission to the ISM does not require that a prospectus or listing particulars are approved by the FCA, but rather, the offering document need only comply with the ISM rules and be approved by the LSE. For these reasons, issuers listing on the ISM are required to comply with a far less stringent regulatory scheme.
For issuers seeking to get equity securities admitted to AIM, no prospectus is usually required because typically the securities are offered only to qualified investors (and as noted above AIM is not a UK-regulated market). However, an AIM admission document must be published that includes the information specified by the AIM Rules for Companies: in practice, it will include much of the same information as a prospectus. The issuer must also appoint a suitable firm as its Nominated Adviser (Nomad), who will supervise the preparation of the admission document and ensure the company satisfies the eligibility criteria and will be able to comply with its continuing obligations.
2.3. Listing Segments
As noted above, commercial companies seeking admission of their equity shares to trading on the Main Market or PSM generally undertake a two-stage parallel process in which application is contemporaneously made to list the securities on the FCA’s Official List.
An issuer seeking admission to the Official List must decide early in the process whether to seek admission to the “premium” listing segment of the Official List or to the “standard” listing segment. Both segments are available to UK and non-UK-incorporated companies. The eligibility criteria and continuing obligations applicable to premium segment issuers are more stringent than those on the standard segment: in particular, a premium segment issuer must comply with certain rules regulating significant transactions and transactions with related parties, appoint a sponsor for initial admission and for certain subsequent transactions, and report on the extent to which it complies with the UK Corporate Governance Code (see Section 3.1.). Premium segment issuers, but not standard segment issuers, are eligible for inclusion in the FTSE UK indices, and therefore usually have greater liquidity in their shares and a lower cost of capital.
3. Key Listing Requirements
The listing requirements for the admission of equity and debt securities vary depending on the market. For instance, the AIM rules are tailored specifically to permit smaller and growing issuers to access public markets, with lower thresholds for admission and less stringent continuous disclosure requirements. The following list outlines some of the key listing requirements for listing equity and debt securities on various markets.
3.1. Equity Capital Markets
The following list outlines some, but not all, of the key listing requirements for premium listings and standard listings and for admission to AIM:
- Domicile: issuers applying for a premium listing, standard listing, or for admission to the AIM may be domiciled in any country. However, to be eligible for inclusion in the FTSE UK indices, the issuer may need to be incorporated in the UK or a “developed country” as defined under the FTSE index rules.
- Minimum Capitalization and Free Float: For premium listings and standard listings, issuers must have a minimum market capitalization of GBP 30 million and a minimum free float of 10%. The minimum capitalization and free float for an AIM issuer are subject only to the Nomad’s assessment of appropriateness.
- Historical Financial Information: For a premium or standard listing and for admission to AIM, normally the issuer must disclose in its prospectus or AIM admission document three years of audited financial information prepared in accordance with UK GAAP, IFRS, or another financial reporting framework recognized by the FCA as equivalent (see Section 4.) For the premium segment, certain additional requirements apply. These include: (i) the financial information must represent at least 75% of the issuer’s business for that three-year period; (ii) in most cases, the balance sheet date must be not more than (a) six months before the date of the prospectus and (b) nine months before the date the shares are admitted to listing, and (iii) the historical financial information must demonstrate that the company has a revenue-earning track record. Some of the requirements relating to historical financial information are modified for companies in the property, mining, and oil and gas sectors and scientific research-based companies.
- Sufficient Working Capital: An issuer applying for a premium or standard listing or for admission to AIM must include in its prospectus or AIM admission document a statement that the issuer and its subsidiary undertakings have sufficient working capital available for the group’s requirements for at least the next 12 months
- Sponsor: An issuer applying for a premium listing must appoint a sponsor approved by the FCA to act as an adviser in its application for a premium listing and on certain subsequent events. Among other things, the sponsor will assess whether the company is suitable for listing. Issuers seeking admission to the AIM must appoint a Nomad for admission and throughout the issuer’s life on AIM. The Nomad will assess the company’s suitability for AIM, supervise the drafting of the admission document, and help the company comply with its ongoing obligations under the AIM Rules for Companies.
- Free Transferability: An issuer applying for a premium or standard listing or for admission to AIM must ensure that, as a general rule, its securities are freely transferable, fully paid, and free from any liens or restrictions on the right of transfer. Exceptions are permitted in certain circumstances, such as where restrictions are needed to comply with the issuer’s local law or where the company is seeking to limit the number of shareholders domiciled in a particular country in order to ensure it does not become subject to onerous regulations.
- Electronic Settlements: Each market requires that securities are eligible for electronic settlement.
- Additional requirements applicable to premium listing issuers: An issuer that has a premium listing must carry on an independent business as its main activity at all times, and must demonstrate that it exercises operational control over the business it carries on as its main activity. A premium-listed issuer must, broadly speaking, comply with UK rules on offering new shares first to existing shareholders in proportion to their existing holdings (pre-emption rules). If a premium listed issuer has a controlling shareholder (broadly, a person who holds 30% or more of the voting rights in the company), it must enter into a relationship agreement with that shareholder that includes certain prescribed provisions designed to ensure that the controlling shareholder does not take improper advantage of their position, and ensure that the (re)election of each independent non-executive director requires the approval of a majority of the independent shareholders.
3.2. Debt Capital Markets
For the admission of debt securities to the Main Market, the FCA must approve the prospectus and admit the securities to the Official List, while the LSE must admit the debt securities to trading on the Main Market. For the admission of debt securities to the PSM, the FCA must approve the listing particulars and admit the securities to the Official List, while the LSE must admit the debt securities to trading on the PSM. The admission of debt securities to the ISM is significantly different, as the LSE only approves the admission particulars, while the securities are not listed on the Official List.
The following list outlines some, but not all, of the key listing requirements for admission to the Main Market, PSM, and ISM:
- Historical Financial Information: For admission to the Main Market, financial information in the prospectus will have to be prepared in accordance with the requirements in Article 23a of the UK PR Delegated Regulation (see Section 4.). For admission to the PSM, where the issuer does not have IFRS accounts, a narrative description of the differences between IFRS and the local accounting principles adopted by the issuer should be provided (although this requirement may be waived). For admission to the ISM, issuers must have accounts prepared in accordance with the issuer’s national law and, in all material respects, with national accounting standards or IFRS. The historical financial information should cover a two-year period or such shorter period as the issuer has been in operation.
- Electronic Settlements: Each market requires that securities are eligible for electronic settlement.
- Disclosure Regime: Where a prospectus is submitted for admission to the Main Market, that prospectus is governed by the UK Prospectus Regulation (which is retained EU law and has applied in the UK since the end of the Brexit Transition Period when it replaced the EU Prospectus Regulation in the UK) and the related Delegated Regulations and rules described below. The level of disclosure required in a debt prospectus will vary depending on the minimum denomination of the debt securities (i.e., the “wholesale regime” applies to debt securities whose denomination per unit amounts to at least EUR 100,000 and the “retail regime” applies to debt securities whose denomination per unit amounts to less than EUR 100,000). Where listing particulars are submitted for application to the PSM, the disclosure rules are based on the wholesale regime of the UK Prospectus Regulation. The admission particulars submitted in connection with an application to the ISM should contain all information prescribed by the ISM Rulebook.
4. Prospectus Disclosure
For the purposes of this section, we will focus on the disclosure requirements applicable to a company seeking listing of its securities on the Official List of the FCA and admission to trading on the Main Market. The AIM Rules for Companies are applicable to companies seeking admission to AIM (assuming that they do not conduct an “offer to the public”) and in which case as noted above the key disclosure document is an ‘admission document’.
When the company is seeking admission to the Main Market the key disclosure document is a prospectus. The prospectus regime in the UK is currently governed by the UK Prospectus Regulation and the delegated legislation which includes the Commission Delegated Regulation (EU) 2019/980 as it forms part of UK domestic law by virtue of the EUWA (the UK PR Delegated Regulation) relevant for the format, content, scrutiny and approval of the prospectus and the Commission Delegated Regulation (EU) 2019/979 as it forms part of UK domestic law by virtue of the EUWA (the UK Prospectus RTS Regulation) relevant for the technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal. In addition, the UK PR Delegated Regulation imposes specific minimum information requirements for a prospectus as set out in the Annexes of the UK PR Delegated Regulation. The relevant Annexes that will apply in each particular case are prescribed by Articles 2 to 23 of the UK PR Delegated Regulation and will depend on, among others, the type of securities being issued, the type of issue (in certain cases), the nature of the issuer, whether the issuer has a complex financial history or has made a significant financial commitment. The UK Prospectus Regulation, the UK PR Delegated Regulation, and the UK Prospectus RTS Regulation formed part of UK domestic law on and after the end of the Brexit Transition Period by virtue of the EUWA. The UK government was given the power to make statutory instruments to amend “deficiencies” in retained EU law to ensure that it could operate effectively however, it made clear that the amendments were not intended to make policy changes but rather to reflect the UK’s position outside the EU and to smooth the transition to this position. As such, the UK Prospectus Regulation, the UK PR Delegated Regulation, and the UK Prospectus RTS Regulation broadly reflect their EU equivalents, although there are a few notable differences between the two regimes. In addition to the UK Prospectus Regulation, the UK PR Delegated Regulation, and the UK Prospectus RTS Regulation, the FCA Handbook also contains the Prospectus Regulation Rules (PRRs) which includes content reproduced from the UK Prospectus Regulation and other rules which the FCA is required to provide under the UK Prospectus Regulation.
The UK Prospectus Regulation requires a prospectus to be written and presented in an easily analyzable, concise, and comprehensible form and to contain the necessary information which is material to an investor for making an informed assessment of the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor, the rights attaching to the securities, and the reasons for the issuance and its impact on the issuer. It may be published in a single document (which is the typical UK practice) or in three separate documents comprising a registration document (containing information relating to the issuer), a securities note (containing information concerning the securities being offered), and a prospectus summary.
Key information that the UK Prospectus Regulation requires to be included in a prospectus for equity securities is set out below (it should be noted that the requirements for debt prospectuses are generally lighter than the below and vary depending on if the securities are being offered under the wholesale regime or retail regime):
- risk factors informing potential investors of the material risks to the issuer, its industry, and the securities being offered. These should be specific to the issuer or shares being offered, be grouped into a limited number of categories with the most material factor listed first, and, where possible, there should be a quantitative assessment of each risk;
- three years of audited financial information prepared in accordance with the requirements in Article 23a of the UK PR Delegated Regulation. The applicable accounting standards depend on where the issuer is established (that is, the UK, EEA, or elsewhere) and whether the financial year begins before January 1, 2021. Broadly, for financial years beginning before or on December 31, 2020, EU IFRS (subject to certain exceptions) must be used. For financial years beginning on or after January 1, 2021, UK issuers must generally use UK-adopted IAS, while EEA and other issuers have more options;
- details of any significant changes in the financial or trading position of the company since the date of the latest published audited or interim financial information included in the prospectus;
- a working capital statement covering the 12-month period from the date of the prospectus, although in practice the company and its sponsor will normally ask the reporting accountants to cover a period of 18 to 24 months in its working capital exercise as a precaution;
- an operating and financial review (OFR) describing the company’s financial condition, changes in financial condition, and results of operations for the periods covered by the historical financial information included in the prospectus. This is similar to, but not quite as broad as, the management discussion and analysis required in a US IPO;
- summaries of material contracts entered into outside of the ordinary course of business by the company’s group in the past two years (or longer if material obligations or entitlements remain outstanding);
- details of any significant shareholders of the issuer, whose interest is notifiable under the issuer’s national laws;
- details of any related party transactions that the company has entered into during the period covered by the historical financial information and up to the date of the prospectus;
- details of any legal proceedings that the company has been party to in the last year;
- prescribed information on the company’s directors and senior management, including remuneration, benefits, and interests in the shares of the company (including share options) and also with respect to the company’s corporate governance; and
- responsibility statements from the company, the directors, and any proposed directors, confirming that they accept responsibility for the information contained in the prospectus and that, to the best of their knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and contains no omission likely to affect its import.
An issuer can omit information from a prospectus in limited circumstances where the FCA accepts that disclosure of the information would be contrary to the public interest, seriously detrimental to the issuer (provided the omission would not be likely to mislead the public) or the information is of minor importance in the specific situation and would not influence the assessment of the financial position and prospects of the issuer.
A supplementary prospectus will need to be published if any significant new factor, material mistake, or material inaccuracy relating to the information included in the original prospectus arises during the period after approval of the original prospectus but before the later of the securities being admitted to trading and the closing of the offer period. Significantly, the issuance of a supplementary prospectus triggers withdrawal rights for any investor who had previously agreed to purchase shares or retail debt securities, as the case may be, in the offering. Such rights are exercisable before the end of the second working day after the day on which the supplementary prospectus was published.
5. Prospectus Approval Process
5.1. Competent Authority/Regulator
The FCA is the “competent authority” in the UK for reviewing and approving prospectuses. In addition, the company will need to follow the formal admission requirements set out in the LSE’s Admission and Disclosure Standards (ADSs).
For an AIM IPO, an applicant must submit to LSE an admission document disclosing certain information required by the AIM Rules and must comply with the admission requirements as set out in Rules 2 to 6 of the AIM Rules (as discussed in further detail below).
5.2. Timeline, review, and approval process
The IPO prospectus review and approval process takes approximately 3-4 months, assuming 3-4 drafts are submitted. Typically, the issuer’s counsel will aim to ensure that the first draft submitted to the FCA is an advanced draft in order to minimize the number of comments and revisions to the document. Each subsequent submission will include a blackline showing changes from the previous draft. The process of submitting drafts to the FCA and dealing with comments raised by them is conducted in private.
For debt securities (including standalone and medium-term note program prospectuses and supplementary prospectuses), issuers will benefit from a shorter review process as it takes four clear working days for the FCA to review the initial draft and two clear working days for each subsequent submission. There is also a same-day approval service for certain supplementary prospectuses for debt securities.
The approval of the prospectus can follow once the FCA clears the prospectus of comments.
6. Listing Process
6.1. Timeline, process with the stock exchange
As mentioned above, there is a two-stage procedure for getting securities admitted to the LSE’s Main Market: (i) the securities need to be admitted to the Official List by the FCA, and (ii) the securities need to be admitted to trading by the LSE. Once both processes are complete, the securities are officially listed and admitted to trading on the LSE. This means two sets of fees and two sets of continuing obligations. Trading is a requirement for listing, and vice versa, so if the securities are suspended from trading their listing will also be suspended.
The main requirements for getting securities admitted to listing on the Official List are described in Sections 2. and 3. To get securities admitted to trading by the LSE, the company must comply with the requirements in the LSE’s Admission and Disclosure Standards (ADS).
Among other things, the issuer must contact the LSE no later than 10 business days before the application for admission is to be considered, using a prescribed form titled Form 1 and accompanied by a draft copy of the prospectus. The application will, however, be considered provisional at this stage and will only be deemed to be a formal application once the prospectus has been approved by the FCA. The formal application and the final prospectus must be submitted to the LSE by no later than midday at least two business days prior to the consideration of the application for admission. Written confirmation of the number of securities to be allotted must also be provided by no later than 16:00 on the day before admission is expected to become effective unless the LSE has agreed in advance to extend this to no later than 07:00 on the day of admission. In practice, the admission to the trading process runs in parallel with the prospectus approval process and has no effect on the overall timetable of the offering.
For a premium listing IPO, under the Listing Rules, the company’s sponsor must make a declaration to the FCA in the prescribed form (Sponsor Declaration) either on the day the FCA is to consider the application for approving the company’s prospectus (prior to its approval) or at another time agreed with the FCA in certain circumstances. The Sponsor Declaration will, among other things, confirm that: (i) the sponsor has taken reasonable steps to satisfy itself that the directors of the company understand their responsibilities and obligations under the Listing Rules and the Disclosure Guidance and Transparency Rules (DTRs); (ii) the company has satisfied all requirements of the Listing Rules relevant to an application for listing; (iii) the applicant has satisfied all applicable requirements set out in the PRRs; (iv) the directors have established procedures which will enable the company to comply with the Listing Rules and DTRs on an ongoing basis; (v) the directors have established procedures which will provide a reasonable basis for them to make proper judgments on an ongoing basis as to the financial position and prospects of the company and its group; and (vi) the directors of the company have a reasonable basis on which to make the required working capital statement. In order to support this declaration, the sponsor will require the company’s reporting accountants and legal advisers to provide it with various comfort letters (which will also be addressed to the company) on the matters covered by the Sponsor Declaration.
For an AIM IPO, the Listing Rules and the ADS do not apply. Instead, the issuer must comply with the AIM Rules for Companies published by the LSE; and the company’s Nomad must comply with the LSE’s AIM Rules for Nominated Advisers. Rules 2 to 6 of the AIM Rules for Companies require the company to provide the LSE with certain information at least 10 business days before the expected date of admission. This covers similar information to that required by Form 1 for a Main Market IPO but also includes additional information such as a brief description of the business, the names and functions of directors and proposed directors, and details, insofar as they are known, of any significant shareholders (i.e., holding 3% or more of any class of shares in the company). At least three business days prior to admission, the company must submit a completed application for admission, in the LSE’s prescribed form, and an electronic copy of its admission document. These final documents must be accompanied by a declaration from the company’s Nomad (Nomad Declaration), similar to a Sponsor Declaration, confirming matters such as the company’s appropriateness for admission on AIM and that the AIM Rules for Companies and the AIM Rules for Nominated Advisers have been complied with, in particular, that the admission document complies with the content requirements set out in Schedule Two of the AIM Rules for Companies. As with the Sponsor Declaration, the Nomad will obtain comfort letters from the reporting accountants and the legal advisers to support its declaration.
In the case of both a Main Market IPO and an AIM IPO, admission to trading becomes effective only when the LSE announces this on a regulatory information service.
7. Corporate Governance
7.1. Corporate governance code/rules (independent director, board and supervisory composition, committees)
A company with a premium listing on the Main Market must report annually on how it applies the Principles in the UK Corporate Governance Code (the Code) and the extent to which it complies with the more detailed Provisions of the Code. Any non-compliance with a Provision must be explained (this approach is known as “comply or explain”). Although compliance with the provisions of the Code is not mandatory, in practice a company may face disapproval from shareholders and even a “corporate governance discount” to its share price if it departs significantly from the Code. The Code covers matters such as the composition and responsibilities of the board and its committees and executive remuneration. Among other things, at least half of the board should be composed of independent non-executive directors. In addition, the chairman should be separate from the Chief Executive Officer, independent on the appointment, and should not act as chair when the committee is dealing with the appointment of his or her successor. In addition, the nomination committee should also comprise a majority of independent non-executive directors, while the remuneration and audit committees should be comprised entirely of independent non-executive directors and have at least three members.
A standard listed company has slightly more flexibility: it must disclose in its annual report which corporate governance code it reports against and the extent to which it complies with the rules of that code, explaining any non-compliance. In practice, most standard-listed issuers that are UK-incorporated report against the Code; but standard-listed issuers that are incorporated elsewhere sometimes choose to report against the corporate governance code of their country of incorporation.
An AIM company similarly must disclose in its annual report which recognized corporate governance code it applies, the extent to which it complies with that code, and an explanation of any departures from it. In practice, most AIM companies report against the Corporate Governance Guidelines for Small and Mid-size Quoted Companies published by the Quoted Companies Alliance.
7.2. Any other Environmental, Social, and Governance (“ESG”) considerations
Investors in UK-listed companies are becoming increasingly interested in companies’ ESG credentials. For example, the revised UK Stewardship Code 2020 that took effect on January 1, 2020 specifies that signatories to the Stewardship Code should explain publicly how they have integrated material ESG issues into their stewardship and investment activities.
Both premium and standard listed companies are required to state whether their annual financial report includes all the climate-related financial disclosures recommended by the Task Force on Climate-Related Disclosures (TCFD) and, where it does not do so, an explanation of why not and a description of any steps the company is taking or plans to take in order to be able to disclose such information in the future.
Diversity and inclusion (D&I) is an increasingly important and high-profile issue for all companies, with greater D&I being encouraged in the composition and culture of company boards, senior management, and the wider workforce. UK-incorporated companies above certain size thresholds are subject to various rules in this area, including a requirement to report annually on the difference between rates of pay for men and women performing equivalent roles (gender pay gap reporting). In addition, certain larger premium and standard segment companies must include in their annual report a description of the diversity policy applied to the company’s board and executive committee in relation to age, gender, or educational and professional backgrounds; the objectives of the diversity policy; how the policy has been implemented; and the results in the reporting period. If the company has no diversity policy, it must explain why not. For reporting periods beginning on or after April 1, 2022 a company’s disclosure of its diversity policy must also cover its remuneration, audit, and nomination committees, and the policy must also cover aspects such as ethnicity, sexual orientation, disability, and socio-economic background.
In addition, for reporting periods beginning on or after April 1, 2022, certain listed companies must include in their annual reports (i) details of whether they have met specified targets for at least 40% of the individuals on the board to be women, at least one senior board member (chair, CEO, senior independent director (SID) or CFO) to be a woman and at least one board member to be from a minority ethnic background; and, if not, an explanation of why not; and (ii) in a standard format, numerical data on the ethnic background and gender identity or sex of the individuals on the company’s board and its executive management.
From a debt capital markets perspective, most ESG bonds are aligned with principles or standards such as the International Capital Market Association (ICMA) Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines, or Sustainability-Linked Bond Principles. They provide guidance on ESG bonds and make certain recommendations, including in relation to reporting.
ESG Bonds listed on the LSE may be admitted to the LSE’s SBM, which includes several segments for, amongst others, green bonds, social bonds, sustainability bonds, and sustainability-linked bonds. Issuers would need to comply with certain requirements (for example, a requirement to provide a second-party opinion for use of proceeds ESG bonds) in order to be eligible for the SBM.
8. Ongoing Reporting Obligations (Life As A Public Company)
Listed companies are required to comply with various ongoing reporting obligations, which vary based on whether the securities are included on the Official List, the market on which the securities trade, and the nature of the securities offered. Once a company has been admitted to trading on the Main Market of the LSE and listed on the Official List of the FCA, it will be subject to an additional layer of regulation. Even where the company has not been listed on the Official List, or where it has been admitted to trading on the PSM, AIM, or ISM, certain ongoing reporting obligations will apply.
In addition to the statutory and common law provisions applicable to all UK companies, there are a variety of rules that apply to issuers on UK-regulated exchanges, including the Listing Rules, the DTRs, Corporate Governance Rules, the PRRs, and the ADSs. Issuers admitted to the premium or standard listing segments must comply with each of the above obligations, while issuers on the PSM must comply only with the Listing Rules, the DTRs, and the PRRs. These rules do not apply to AIM or ISM companies.
Moreover, both listed and unlisted companies will need to ensure that they meet the ongoing obligations under UK MAR, as a breach of UK MAR by an individual or legal person is a civil offense punishable by a fine and administrative sanction. As such, companies admitted to the ISM must comply with UK MAR, although such companies are not obliged to comply with the Listing Rules, DTRs, Corporate Governance Rules, or the PRRs. Instead, such companies must comply with the rules prescribed under the ISM Rulebook.
8.1. Annual and interim financials
For all companies with listed shares, and those with a retail listing of debt, the rules on financial statements are set out in the DTRs. The DTRs provide that an issuer must publish audited annual accounts within four months of its financial year end and unaudited accounts for the half-year period within three months of the end of that period. Both annual and half-yearly accounts must comply with the requirements set out in the DTRs. Both annual and half-yearly financial statements must be prepared in accordance with the UK-adopted IFRS or an accounting framework recognized by the FCA as equivalent.
Issuers of wholesale debt and issuers who only have securities listed on the PSM or ISM are subject to a somewhat more relaxed regulatory framework which provides an extended six-month period for issuers to produce their annual reports and permits the issuer to prepare their reports in accordance with national accounting standards. Issuers on the ISM and PSM are exempted from the requirement to prepare interim reports.
8.2. Ad hoc disclosures and other requirements
Periodic reporting requirements for companies listed on the LSE’s main markets vary depending on the market. The following list outlines some, but not all, of the key periodic reporting requirements for premium and standard listed companies and companies with securities admitted to AIM, the PSM, or ISM:
- Cancellation: 75% shareholder approval is required for the cancellation of premium listed securities and for securities admitted to AIM. No shareholder approval is required to cancel the listing of securities admitted to other listing markets and segments.
- Transfer Between Listing Categories: 75% shareholder approval is required to transfer securities from the premium to the standard segment.
- Prospectus requirements: Under the UK Prospectus Regulation, a prospectus must be published where either (i) transferable securities are offered to the public in the UK; or (ii) transferable securities are admitted to trading on a UK-regulated market. In the case of each trigger, various exemptions are available. In practice, a company with securities admitted to the Main Market will usually need to publish a prospectus after its initial admission only where it does large secondary fundraising (e.g., where it issues shares that represent over 20% of its existing ordinary share capital, typically in a pre-emptive offer to existing shareholders) or where it is a premium listed company and it enters into a transaction that qualifies as a “reverse takeover.” An AIM company will usually need to publish a prospectus after its initial admission only where it does a pre-emptive offer to existing shareholders. Companies with securities admitted to the PSM or ISM do not usually need to publish a prospectus after their initial admission.
- Significant Transactions:
Premium-listed companies must announce certain details of any transaction that exceeds 5% in any of the class tests (which compare the size of the assets being bought or sold to those of the listed company and its group as a whole). Where the transaction exceeds 25% in any class test, the company must obtain approval from a majority of shareholders before the transaction completes. For this purpose, the company must send a circular to its shareholders containing certain prescribed information, and obtain advice from a sponsor. Certain transactions with related parties must be announced and, where the transaction exceeds 5% in any of any class tests, shareholder approval must be obtained. Again, the company must send a circular to its shareholders containing certain prescribed information and obtain advice from a sponsor.
Standard listed companies must announce any transaction with a related party that exceeds 5% in any class test, but shareholder approval is not required for significant transactions.
An AIM company must announce details of any significant transaction that exceeds 10% in any class test and any transaction with a related party that exceeds 5% in any class test. However, shareholder approval is required only if disposals over a 12-month period exceed in aggregate 75% in any class test or if the company proposes to enter into a transaction that constitutes a “reverse takeover.”
There are no specific disclosure requirements for significant transactions for ISM or PSM issuers.