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Developments in the London listing markets: Aquis Stock Exchange & climate-related disclosures19 January 2022

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In this briefing, we focus on (i) recent changes to the rules of the AQSE Growth Market to extend these to special purpose acquisition companies (SPACs) and investment companies and (ii) the new rule on climate-related disclosures introduced by the Financial Conduct Authority (FCA) for standard listed issuers.

Our previous briefing, which outlined various changes to the Listing Rules, can be found here.

Aquis Stock Exchange (AQSE)

The AQSE provides an alternative exchange upon which companies may be listed within the UK.

As detailed in our previous note, the AQSE comprises two primary markets (AQSE Main Market and AQSE Growth Market, which is divided into two segments – Access and Apex) and it is the Access segment of the AQSE Growth Market which has been subject to recent changes effective from 8 December 2021.

"SPACs and investment companies have been brought within the scope of new rules on admission."

The scope of the new rules

SPACs and investment companies have been brought within the scope of new rules on admission by virtue of the following definition of ‘Enterprise Company’ being added to the Access Rulebook:

“an issuer whose predominant purpose or objective is to undertake an acquisition or merger, or a series of acquisitions or mergers, or to finance and/or invest in securities or businesses”.

Content of the new rules

The updated Access Rulebook confirms that Enterprise Companies will now need to:

  • raise a minimum of £2m prior to or at admission;
  • have a market capitalisation value at admission of no more than two times the value of the company’s net tangible assets; and
  • have a minimum free float of 25% at admission.

In addition, the AQSE has been afforded the power to suspend and withdraw an Enterprise Company from the AQSE Market if “it has not executed on its stated strategy within two years of admission”. This is the same as the period of two years for SPACs listed on the Main Market (which can be extended to three years with shareholder approval). Similarly, where an AIM investing company has not substantially implemented its investing policy within eighteen months of admission, it should seek the consent of its shareholders for its investing policy at its next annual general meeting and on an annual basis after that, until its investing policy has been substantially implemented.

"While the £2m minimum fundraising requirement may arguably act as a deterrent for very small companies, this requirement compares favourably with the £6m fundraising requirement for AIM investing companies."

Commentary

The new rules are driven by the AQSE’s desire to ensure increased stability in the Access Market, thereby safeguarding the interests of the companies admitted to the market and investors alike through setting higher thresholds as to the financial viability of Enterprise Companies.

While the £2m minimum fundraising requirement may arguably act as a deterrent for very small companies hoping to list, given the greater dilution that current shareholders would suffer, this requirement compares favourably with the £6m fundraising requirement for AIM investing companies, creating a viable alternative for smaller SPAC-style entities and neatly filling the gap left by the increase in the minimum market capitalisation threshold for ordinary commercial companies listing on the Main Market premium and standard listing segments from £700,000 to £30m.

It will also be interesting to see how robustly the AQSE will enforce its power to suspend and withdraw Enterprise Companies that have not substantially fulfilled their investment plans within two years of admission, given that this is a power and not an absolute rule.

New FCA rule on climate disclosures

On 17 December 2021, the FCA published its final rule and guidance on climate-related disclosures ending a lengthy consultation period. The new rule and guidance took effect from 1 January 2022 and apply to all issuers of standard listed shares (equity and non-equity) and to standard listed issuers of Global Depository Receipts (in addition to premium listed issuers already bound by this rule).

"The new rule and guidance took effect from 1 January 2022 and apply to all issuers of standard listed shares and to standard listed issuers of Global Depository Receipts."

Content of new climate disclosure rules

In-scope entities will, by virtue of the new Listing Rule 14.3.27 R, now need to include in their annual financial reports for all accounting periods beginning on or after 1 January 2022, details of the following:

(i) disclosures consistent with, and as prompted by, the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations;

(ii) where they have failed to make disclosures required by (i) above, reasoning as to why no such disclosure has been included and an outline of the remedial steps being taken to be able to comply with (i) in the future, along with timeframes by which they intend to be compliant; and

(iii) where disclosures required by (i) above are set out in whole or part in a document other than the financial report, then details of the other document, an explanation of why these disclosures were not included in the annual financial report and details of where such disclosures can be found.

The TCFD Recommendations can be summarised to cover four main areas: governance, strategy, risk management, and metrics and targets. It will be the responsibility of each in-scope entity to address each of the recommended disclosures with the supplementary guidance published by the TCFD also being taken into account.

"The new rule is indicative of the FCA’s commitment to integrate wider ESG considerations within UK capital market conduct."

Commentary

The new rule is indicative of the FCA’s commitment to integrate wider Environmental, Social and Governance (ESG) considerations within UK capital market conduct. This is also emblematic of the UK government’s targets for the wider economy, aiming for sustained decarbonisation in an effort to reach a Net Zero position by 2050, and by building upon the Taxonomy Regulations introduced midway through 2020 (discussed in more detail here). First and foremost, such initiatives must be commended, as the role that industry plays in achieving such environmental goals cannot be downplayed. In addition, the new rule will effectively bring the obligations for in-scope companies into alignment with the existing obligations for premium listed companies under Listing Rule LR 9.8.6 R (8), which was introduced in December 2020, bringing with it a degree of uniformity across listed entities. This point is not without controversy though, as one of the perceived benefits of standard listings is a more relaxed regulatory regime and, with it, historically, lesser administrative requirements.

Another benefit of the new rule will be that potential investors can also consider a listed company’s environmental risk factors and strategy, thereby allowing them to make informed ethical decisions. For companies, evidencing compliance will also be indicative of a resoluteness to weather environmental challenges which may face the entity in the future, giving a competitive edge over other entities which have not complied. This, in turn, is likely to make compliant companies more appealing for investment, reiterating the increasing importance that ESG plays as a value driver for corporations.

"The benefits derived from the new rule will depend, at least to some extent, on how stringently this is enforced by the FCA."

The benefits derived from the new rule will depend, at least to some extent, on how stringently this is enforced by the FCA. Non-compliance should, on the face of it, amount to a breach of an ongoing Listing Rule, which would open up a raft of remedial actions to the FCA, including the imposition of fines, censorship and/or suspensions of the relevant listed entity, its officers, shareholders and/or sponsors so appointed under the Financial Services and Markets Act 2000. There have to-date been no high-profile actions for breaches by companies with a premium listing and it remains to be seen if there will be such actions in future whether for premium or standard listed companies. History suggests, however, that the FCA will, after allowing some time for new rules and compliance with them to settle, start to flex its muscles.

Conclusion

These changes are welcome as they either complement the position of, or align rules with, other UK markets, all of which contributes to making London an attractive option for listing, with its various alternative markets suitable for different types and sizes of company.

Trainee Idil Yusuf also contributed to this article.

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