Market Analysis – Q3 2024
The very first foreword that PKF wrote for this publication back in 2020 concerned the then Government’s proposals aimed at strengthening the UK’s audit framework and changing some of the listings rules to make the UK’s capital markets more attractive. Described at the time as “welcome” and “long-awaited”, I think that we can all agree that the reforms haven’t done much materially to shift the dial.
The London Stock Exchange and AIM have been in the doldrums for a prolonged period and headlines in the mainstream press have been quick to criticise their performance compared to New York and other international markets as wave after wave of UK-based companies, such as TP Icap chose to list elsewhere. Real concern has been expressed about the London market’s future, although the drop in inflation, reduced interest rates and other economic improvements have led to more optimism of late and a small pipeline of potential forthcoming listings such as Canal+ and a secondary listing for Anglo American Platinum.
Now the other lot are having a go. The new Government announced its plans for audit reform including a stronger regulator with increased oversight, the ability to bring directors to book for misbehaviour and changes to corporate governance, in the King’s Speech in July; and straight out of the gate following the General Election, the Financial Conduct Authority announced plans for big changes to listing rules on 11th July, some of which came into force as early as 29th July.
The draft Audit Reform and Corporate Governance Bill together with the FCA’s listings rules changes, take a two-pronged approach. On the one hand they aim to strengthen audit and corporate governance to build investor and public trust in the country’s most important companies’ financial information by unleashing a more powerful regulator; and on the other, they aim to bring more proportionality to the London listings rules making it a more welcoming environment for smaller companies and boosting its attractiveness.
In a nutshell the Bill’s big proposals are to:
- Replace the Financial Reporting Council with a beefed-up version: the Audit, Reporting and Governance Authority (ARGA). Initially promised by the previous Government in May 2022, this was postponed in 2023 for fear the new regulations would result in additional financial cost for companies.
- Extend Public Interest Entity (PIE) status to large private companies of national importance while removing unnecessary and disproportionate rules on smaller PIEs.
- Provide consequences for inadequate financial reporting by giving ARGA the powers to investigate and sanction company directors for serious failures, and
- Protect against conflicts of interest at audit firms.
While the FCA’s changes, advertised as the most significant in 30 years aim to:
- Simplify the listings regime with a single category – eliminating the two-tier premium and standard listings, and
- Remove the need for votes on significant or related party transactions.
These changes aim to bring the UK in line with other international market standards while allowing for greater risk, in order to attract more companies to list in London. Rachel Reeves, the Chancellor, claims that the changes “represent a significant first step towards reinvigorating our capital markets.” Fingers-crossed!
While the majority of bodies such as the ACCA, ICAEW, FRC and others are all soundly in favour, there are already comments from investment funds about whether relaxing listing rules will introduce too great a risk and ultimately damage the London market’s reputation if it results in a string of business failures.
There is no doubt that the Government has been very quick off the mark to introduce changes that have been debated and consulted upon for a number of years. It remains to be seen whether the reforms will make Britain the best place in the world to invest and to start, run and grow a business, as Alan Vallance, Chief Executive of the ICAEW predicted in The Times. There are allegedly more changes still in the pipeline.
Could it be that this time, finally, these reforms will make the difference and enable the market to bounce back…?
This article was originally published in the Q3 2024 Corporate Advisers Rankings Guide. For more information, please contact Joseph Archer.
