The Financial Conduct Authority (FCA) has published a paper outlining an ambitious plan to make the UK a more attractive place for companies to conduct an initial public offering (IPO).
The FCA has said it wants to promote “positive change with greater regulatory open-mindedness” to encourage early-stage companies looking to IPO to list on the London Stock Exchange.
“More companies listing at an earlier stage in their life cycle means more opportunities for investors to share in the returns of those companies as they grow,” the FCA said in its paper.
The financial watchdog recommended allowing companies to meet a single set of criteria instead of following the overly segmented model that provides strong shareholder protection and governance but was argued to be too rigid.
The FCA noted in the paper a significant need to adapt to encourage more public listings in the UK. Analysts at the regulator found a “reduction in the number of companies being admitted to both the LSE Main Market and the Alternative Investment Market (AIM) over the past two decades”.
Data published in a report by Bloomberg supports the FCA’s concerns, finding that venture capital funding is massively outshining the city’s public markets.
It also noted that London public listings saw the worst first quarter since 2009, as inflation and global market issues caused by events such as the Russian invasion of Ukraine stunt the growth of the UK’s stock exchange.
And when a UK company is ready to go public, the report found that it can seem too attractive an option to make a move towards the US.
“The UK is still by far the largest venture capital market in Europe, and is continuing to go from strength to strength,” said Ed Lascelles, partner at Albion, a venture capital firm.
“But when companies get to a certain size, the sophistication, the sheer amount of money available for them is just much greater from the US than for any other location.”
Challenger bank Atom is one of several promising UK companies eyeing an IPO outside of London.
Luke Smith, partner at AIM-listed Forward Partners, said: “Removing barriers to listing for high growth companies can only help but ultimately the attractiveness of a London listing will be determined by whether there is a base of investors who understand and value high growth technology businesses.”