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Brexit shake-up essential to save the City of London, stock exchange warns

London will lose its status as a global financial hub and be downgraded to a middling “regional market” without a post-Brexit overhaul of City rules, the chairman of the London Stock Exchange has warned.

Michael Findlay, who also chairs an influential advisory group to the City watchdog, issued a stark warning, saying officials must tear up decades-old orthodoxies and water down a host of stock market rules if the Square Mile is to remain competitive with the likes of New York, Shanghai, Tokyo and even Amsterdam.

In a submission to the Financial Conduct Authority (FCA)’s primary markets review, Mr Findlay said the UK has a “once-in-a-generation opportunity to implement radical reforms” to ensure London remains a relevant destination for flotations and capital raisings.

He added that without this “essential modernisation”, London’s status as a global market runs a “material risk of diminishing to that of a regional exchange” and that the size of Britain’s public capital markets will continue to shrink.

The warning is the strongest indication yet that the Government and City regulators could be pushed to axe swathes of red tape in the financial services industry amid fears London is falling further behind rival cities.

It also comes as tensions continue to grow between ministers and watchdogs over the pace of post-Brexit regulatory reform, with Liz Truss weighing a potential merger of the City’s main regulators in a bid to put growth and competitiveness at the heart of post-Brexit regulation.

Mr Findlay’s submission, authored with Mark Austin, a partner at law firm Freshfields and chairman of another advisory panel to the FCA, argued that regulators must quickly do away with excessive rules, which are acting as a competitive disadvantage to the UK.

It said: “We are in a foot race with our competitors, and we cannot afford to be ignorant of that or complacent about what we need to do if we want to stay relevant.

“It means that we as a jurisdiction cannot and should not continue to assume that the ‘gold plating’ that we currently have in place in regulatory terms is necessarily fit for purpose for our markets if we want to keep them relevant in the coming years.
 
“It was relevant in the past couple of decades, but it is unlikely to be in the coming two decades unless we are satisfied with slipping gently into being a relatively mid-market, regional capital market.”
 
The submission proposed abandoning the “restrictive philosophy” that governs the current listings regime in favour of a “disclosure-led approach” that was previously adopted by the Financial Services Authority, the FCA’s predecessor.
 
It also advocated a radical simplification of the current listings regime, including scrapping the current premium and standard segments and creating a “genuine single segment” with less stringent rules.  
 
In May, the FCA also proposed scrapping the current premium and standard regime to lure tech companies to the UK, with additional “mandatory” and “supplementary” obligations that public companies would have to meet.
 
However, Mr Findlay and Mr Austin said this would in effect maintain a “two tier” regime, adding: “The FCA’s current proposed criteria… remain in some respects onerous and could operate as a competitive disadvantage when put side by side with other listing venues with which the UK competes.”  
 
At present, only companies with a premium listing are eligible to be included in the FTSE indexes, meaning that scrapping the current regime would mark one of the most significant overhauls of London’s stock market rules since the 1980s.
 
London’s capital markets ground to a halt this year following Russia’s invasion of Ukraine and the outlook remains bleak as a recession looms. In the first six months of the year, only 13 listings took place in the capital, raising proceeds of just under $150m, mammoth declines of 71pc and 99pc respectively on the previous year.
 
Last year, the FCA reformed London’s listings rules to allow dual class share structures and lower free float requirements in a bid to boost the market, but the intervention from Mr Findlay suggests that the reforms do not go far enough.
 
He warned that London is no longer the “default” European venue for listings and equity raises, adding that even cities such as Warsaw have shown an ability to host initial public offerings at attractive valuations with the participation of global investors.
 
The submission also proposed relaxing the current sponsor regime, which requires a third party to provide oversight and assurances to the FCA about listed companies in a bid to protect investors.
 
Mr Findlay was writing in capacity as chairman of the Markets Practitioner Panel, while Mr Austin chairs the FCA’s Joint Listing Authority Advisory Panel.
 
A spokesman for the FCA said: “We are currently seeing feedback from the industry on potential changes to the listing regime in an aim to attract more high quality, growth companies to list in the UK. We are pleased to see the degree of debate it has provoked, and we welcome the panels’ contribution.”

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