A leading governance academic has taken aim at proposed reforms of the UK’s listing regime, claiming these would, if introduced, “abandon” a significant plank in shareholder protections.

The criticism comes as the FCA works on further changes to public company regulation after action to open up markets to dual-class shares failed to prove as popular as expected.

The proposed changes, currently under consultation, would see the end of “Premium” listing; the creation of a single listing category; and allow an even more permissive approach to dual-class shares.

But Bobby Reddy, a professor in the faculty of law at Cambridge University, says a further proposal—removing the requirement for shareholder approval of large related-party transactions—would be a mistake.

Reddy writes that the reform, in particular for dual-class shares, would be “disenfranchising public shareholders”.

He argues that the “opportunities for abuse” would be higher in a market that allows dual-class shares because “a controlling shareholder could enter into a self-serving related-party transactions largely detached from any ensuing impact on share value”.

Reddy adds that the proposals “appear to abandon an important ancillary form of public shareholder protection that would have buttressed the risks of more expansive dual-class shares”.

All hangs on tech

Dual-class shares were introduced for Premium-listed companies in December 2021 after an intense public debate. They were seen as a way for London to compete with other markets for big tech company listings that were going mostly to the US. Hong Kong and Singapore had also recently allowed dual-class shares.

However, UK dual-class shares came with stiff conditions, including sunset clauses of five years, a maximum voting ratio of 20:1, and a proviso that only directors could hold them. This led some critics, notably Reddy, to dub them dual-class “lite”.

Though the FCA is moving towards more relaxed regulation for dual-class shares, not everyone is happy. The Engagement Appeal (TEA), a body that campaigns for improved investor engagement with retail shareholders, believes the relaxation of dual-class share rules could “end up harming” investor trust and confidence in public markets.

“In our view,” TEA says in a statement, “the proposed changes will disenfranchise investors, as compared to the existing listing regime, rather than empower them.”

Some see the reforms as essential if London is to compete with other markets, though there is concern that reforms are coming too late. Lawyers from City firm King & Spalding write that it is “too little, too late” simply because other markets have been operating for years “under less stringent rules”.

Consultation on the proposals closes on 28 June. The FCA is likely to move towards a more relaxed regime. But we will have to wait for the detail.