In late December 2023, the FCA published its proposed changes to the UK's Listing Rules. The purpose of the consultation paper was to address long-standing concerns held by corporates around the barriers to listing in the UK.
Part of the purpose of the proposed changes is to make UK public markets more accessible to a wider range of companies, therefore making the UK a more competitive market place in a post-Brexit global environment.
The proposed new UK Listing Rules are progressing at pace towards implementation, with the consultation on the FCA's proposals having closed in early April this year and the FCA seeking to bring in the changes in the second half of 2024.
When publishing its detailed proposals for changes to the Listing Rules in December 2023 the FCA commented that it had aimed to move towards a disclosure based regime that "puts sufficient information in the hands of investors, so they can influence company behaviour and decide how they want to invest". In implementing the changes, the FCA intend to make listing in the UK more "accessible, effective and competitive."
With increased statements to markets and the FCA admitting that the proposals "could entail an increased possibility of failures" the scene appears to be set for the seeds of future FSMA s90 and s90A claims to be sown.
Prospectus Requirements
Under proposed changes, a company will still produce a prospectus when seeking admission of its equity shares to a regulated market. However, the prospectus is no longer required to contain information regarding revenue track records or statements of clean working capital. This has the knock on effect that, prior to listing, an applicant company's Sponsor (an expert that advises on obligations under the Listing Rules and verifies statements made by companies) will no longer be required to validate these elements of a company's financial health.
Some commentators have suggested that the "watering down" of the Listing Rules will lead to an increase in investor claims. The absence of this validation process necessarily increases the risk that investors may rely on statements by the company which ultimately turn out to be false. This inevitability increases the prospect of shareholders seeking redress for their losses, arising from these alleged misstatements, under FSMA.
Increase in shareholder claims?
The purpose of introducing a statutory regime for issuer liability under FSMA was to increase shareholder protection in respect of losses arising from misstatements made by issuers.
S90A (and Schedule 10A) of FSMA provide a right of action to shareholders of UK listed companies arising out of misleading statements made by senior officeholders of that company.
A similar mechanism exists under s90 of FSMA in a scenario where securities have been acquired (or held) on the basis of untrue or misleading statements in a company's listing particulars or prospectus resulting in a loss.
Statements made by companies and their officeholders are under increased scrutiny in the UK as investors look to recoup any investment losses. As a result, these types of claims under S90 and S90A of FSMA are gaining momentum in the UK.
However, whilst there have been a number of high-profile claims in this area, no claims under s90A or s90 have reached a full trial covering both liability and quantum issues. As such judicial commentary around issues such as reliance, and the quantification of loss, remain uncertain.
Whilst these claims typically engage a corporates' D&O policy, such that significant defence costs often need to be advanced, s90A is a dishonest based cause of action, such that policy response needs to be considered carefully.
Conclusion
It remains to be seen whether the proposed changes to the Listing Rules will lead to more claims against entities and officeholders arising out of misleading statements made to investors. What is certain is that this is a developing area of UK law that corporates and their insurers will need to keep a close eye on.
