UK watchdogs are to introduce a brand new, simplified, single listing category, doing away with the old distinctions of premium and standard main market listings.

And despite pushback during initial calls for evidence, the Financial Conduct Authority (FCA) says companies achieving the new “commercial companies” category will be required to report on how they have applied the principles of the UK Corporate Governance Code and whether they have complied with its provisions.

The FCA declined to offer a “size” threshold below which “more flexibility” is offered on compliance with the code. Instead, it stresses that, under the code’s foundational principle of “comply or explain”, a company is entitled to detail why it has not complied with elements of the code.

In a report out today, the watchdog says: ”Demonstrating good governance through high-quality explanations can provide companies with the opportunity to display how their unique governance arrangements support the delivery of continued shareholder value.”

There is a warning from the FCA that foreign companies listing in the UK can use alternative governance codes as an “explanation” for non-compliance with UK provisions, but only if they are “credible” and still “achieve the same principles of good governance”. Codes from other jurisdictions would be those “required by law or regulation”, or which are widely adopted, the FCA says.

Not floating but drowning

Reform of the listings regime has been prompted by the declining popularity of the UK capital market as a place to float. The number of listed companies has fallen by around 40% since 2008, according to the FCA. In the five years to 2020, the UK accounted for only 5% of new listings globally.

Bim Afolami, economic secretary to the Treasury, said: “We are strengthening the UK as a listing destination, taking forward reforms to make it quicker to list, improve disclosure and make our capital markets more efficient and open.”

The FCA will also switch the UK market from its current rules-based regime to a “disclosure-based” approach, with a focus on clear and concise disclosures and materiality.

This, the watchdog acknowledges, comes with risks. The FCA says: “The proposals could entail an increased possibility of failures, but the changes set out would better reflect the risk appetite the economy needs to achieve growth.”

There has been concern about the competitiveness of UK capital markets for some time. Consultations on the current proposals were launched in May but worries go further back, to when anxieties were growing about the increasing attractiveness of other jurisdictions, chiefly New York.

Moves have recently been made to allow dual-class shares in London after other listings regimes, notably Hong Kong and Singapore, moved to relax their rules. The UK’s new measures have been heavily criticised as “stock lite”.

Elsewhere, analysts have identified a host of issues driving capital to other markets, among them regulatory hurdles, a lack of investment research in high-growth companies and the low number of pension funds and insurance companies willing to invest.

Recent proposed audit reforms have also fallen victim to a drive to reduce barriers to UK markets. When business minister Kevin Hollinrake announced the cancellation of new reporting requirements for risk and resilience and assurance policies, it was Julia Hoggett, chief executive of the London Stock Exchange, who was quoted on the same press release, saying new corporate governance measures had “impacted the effectiveness of listed companies and the standing of the UK over other capital markets”.

Reforming the listings regime was probably overdue but whether the reforms—and ditching long awaited changes to the audit sector—will boost London against other capital markets remains to be proven. Implementation of the GCA reforms is expected in the second half of 2024.