British business leaders expect London’s bourse to experience more delistings over the next few years in spite of recent reforms from the U.K.’s financial regulator that are aimed at helping to reverse that trend.
Over half of the respondents to a survey of FTSE 350 company boards have said that they expect the London Stock Exchange to continue to experience net delistings over the next five years, as opposed to almost a third who said they believe the trend will end.
The findings were revealed by the Chartered Governance Institute UK & Ireland in its Boardroom Bellwether survey. The institute compiled the results from 72 responses from company secretaries: 42 from businesses on the FTSE 100 index and 30 from the mid-cap FTSE 250.
“The survey results confirm our view that the FCA [Financial Conduct Authority] is on the wrong track with its recent reforms,” said Peter Swabey, policy & research director of The Chartered Governance Institute.
Business leaders have been telling Swabey and his colleagues that the regulator’s measures have failed to address the market’s longstanding problems. “The FCA’s reforms were counter-productive,” Swabey continued. “They have removed important investor protections, whilst doing nothing to attract new listings. Does the FCA really think that allowing a host of low-quality companies to list in London is going to solve the problem of the all-share index underperforming the S&P500?”
The FCA overhauled the country’s listing regime in mid-July with the aim of boosting London’s ailing stock market by encouraging more companies to list and raise capital in the U.K.
A spokesperson for the FCA said, “We undertook the most far-reaching reforms of the UK’s listings rules in three decades because our regime had fallen increasingly out of step with those of other countries.
The financial watchdog also pointed out that regulation is only one factor in supporting vibrant public markets and it’s continuing to work closely with the government and industry to achieve sustainable growth.
The FCA’s new regulations give companies the authority to carry out more activities without putting them to a shareholder vote. They also make it easier for companies to have dual-class share structures often favored by founders or venture investors who want to retain control of their businesses after they have gone public.
The U.K.’s capital markets have been pummeled by international competition and an outflow of investment. British companies have been moving to the larger U.S. market on the expectation of attaining higher valuations and gaining access to deeper pools of capital.
Moreover, British pension schemes have been allocating a lower proportion of their funds in domestic stocks since the early 2000s, when the government introduced rules that compelled retirement fund managers to be more open about their investments.
Swabey points out that there is “less and less cash under management in London,” and he believes the problem will continue to worsen. “We urge the government to listen hard and to think of radical ways to restore faith in the stock market,” he said. “Penson fund reform is likely to be the quickest win.”