2025 UK and European Capital Markets Update: “All Change!”
January 16, 2025
UK and European capital markets underwent significant reform in 2024.
The UK Financial Conduct Authority (FCA) overhauled the UK listing regime and implemented new listing rules (UKLRs) as part of the UK government’s efforts to simplify and modernise the regime and reinvigorate the UK capital markets. The UKLRs pave the way for further reform of the UK’s prospectus and public offer regimes, with final rules expected in the summer. In the EU, the EU Listing Act introduces fundamental changes–to the EU market abuse and prospectus regimes, in particular – which are intended to simplify and standardise requirements for EU listed issuers. The EU Listing Act is part of the EU’s Capital Markets Union project aimed at increasing the attractiveness of EU capital markets. These reforms have generally been positively received on both sides of the Channel. Despite some alignment amongst the reforms (whether implemented or proposed), they also introduce notable divergence between the UK and EU regimes, for the first time since Brexit.
Reform of the UK Listing Rules
Overview
July 29, 2024 marked a fundamental change to the UK listing regime, as the FCA’s landmark reforms to the UKLRs came into effect. At the core of the UKLR reforms is the replacement of the standard and premium listing categories of the FCA’s Official List with a single listing category for shares in commercial companies, and a more streamlined set of rules relating to eligibility and continuing obligations. Companies looking at primary listings, especially companies with no or limited operating history, as well as companies with a complex financial history, which may have been discouraged from listing before, may want to consider UK listings in light of the reforms.
Context for Reform
In response to a significant decline in UK listings (and initial public offerings globally),[1] the “UK Listings Review” was launched by the UK government in November 2020 to consider and improve the UK’s position as a global financial centre. Building on the recommendations of that Review, the FCA has been consulting on a series of reforms to simplify and modernise the UK listing regime, including the new UKLRs and other proposed revisions to the UK’s prospectus and public offer regimes.
Cohesively, these reforms will look to shift greater discretion and responsibility to the FCA, lower regulatory barriers and ease the capital-raising process for companies seeking to list in London, while maintaining the high standards of corporate governance, shareholder rights and transparency associated with a London listing. Following the implementation of the ULKRs, further reform is expected including a new prospectus regime which will revoke and replace the current UK Prospectus Regulation.[2] We focus here on the impact of the new UKLRs.
Notable Updates
- Single listing category – The FCA has departed from its historic dual structure of premium and standard listings, replacing them with a single listing category and set of rules for “equity shares in commercial companies” (ESCC).[3] Listing categories for other types of instrument and issuer are also in effect, including a new “transition” category for issuers that had an existing listing on the date the new UKLRs came into force. In keeping with the FCA’s stated aim to encourage a diverse range of companies to list and grow on UK markets, there is no definition of what constitutes a “commercial company,” and admission to the ESCC category is not restricted to issuers with specific business models.
- Eligibility requirements – The new UKLRs retain the core set of eligibility requirements that applied to all equity share listings under the previous regime (such as the 10% minimum free float and market capitalization requirements). However, financial eligibility criteria once applicable to premium listings has been dropped, notably the requirements to produce i) a three-year revenue earning track record; and ii) an unqualified working capital statement. These changes will allow companies with no or limited operating history, as well as companies with a complex financial history, to list on the ESCC listing category. The current UK Prospectus Regulation continues to require a working capital statement (although this may be qualified). The FCA’s broad powers to assess eligibility for listing, and to refuse applications where it considers listing would be detrimental to the interests of investors, remain.
- Significant transactions regime – Prior to reform, shareholder approval and publication of an FCA-approved disclosure document were required where a proposed transaction was ‘significant’ as determined by the class tests, which assess the size of a transaction by reference to certain percentage ratios. Under the new UKLRs, shareholder approval of “significant” transactions (i.e., transactions meeting the 25% threshold, based on retained class tests) is no longer required, but disclosure must be made to the market (though no FCA approval of the disclosure is required). The new UKLR regime provides for: (i) an initial notification with information on the transaction; (ii) follow-on disclosures to be made as soon as the necessary information is available; and (iii) a completion notification. Historical financial information and fairness statements will not be required in the case of acquisitions. The provision for separate notifications affords issuers greater flexibility around the timing and content of announcements for significant transactions.
- Related party transactions – Prior to reform, shareholder approval and publication of an FCA-approved disclosure document were required for certain transactions between a listed company and its related parties (assessed, based on the size of the transaction). Under the new UKLRs, related party transactions will no longer require shareholder approval. The FCA has instead endorsed a disclosure-based approach (though no FCA approval of the disclosure is required), enhanced by additional governance requirements. The previous disclosure requirements for smaller related party transactions, where percentage ratios fall between 0.25% and 5%, have been removed in their entirety. Any such transactions at or above the 5% threshold will require board approval (excluding any conflicted directors) and a timely market announcement including a “fair and reasonable” statement from the board of directors, with written support from a sponsor (see below for further information on sponsor requirements). Further, a party now becomes a “substantial shareholder”, and thus a related party, at 20% of voting rights in the company, as opposed to 10% prior to the UKLR reforms.
- Dual class share structures – Prior to reform, weighted voting rights for main market listed companies could only be exercised in certain limited circumstances. They were permitted to subsist for five years and could only be held by a director. The final UKLRs permit institutional investors or shareholders at the point of listing to hold enhanced voting rights in commercial companies, though there is a 10-year “sunset” (i.e., maximum time restriction) on the exercise of these enhanced voting rights. As such, specified weighted voting rights shares may now be held at the point of listing by: (i) directors; (ii) existing investors or shareholders (natural persons and institutions); (iii) employees; or (iv) persons established for the sole benefit of, or solely owned and controlled by, a person in (i), (ii) or (iii). Holders of specified weighted voting rights shares will not be able to vote in situations where the UKLRs require a shareholder vote to be taken, save for reverse takeovers and the election of independent directors.
- Controlling shareholders – An applicant for premium listing was previously required to demonstrate that it intended to carry on an independent business as its main activity. These requirements are abolished for commercial companies, except where a company has a controlling shareholder (broadly, a person who controls 30% or more of the votes). The new UKLRs also remove the requirement for a relationship agreement with a controlling shareholder, although independence will still need to be demonstrated (it remains to be seen how practice evolves on this point). The UKLRs also include a shorter list of factors which may indicate that an issuer is not independent of a controlling shareholder. A further continuing obligation has been included in the UKLRs where a controlling shareholder (or its associate) proposes a resolution that a director considers is intended, or appears to be intended, to circumvent the proper application of the UKLRs. In this case, the circular accompanying such proposal must include a statement of the director’s opinion regarding that resolution.
Sponsor Regime
The rules governing sponsors and their conduct of sponsor services remain substantively similar to the previous requirements for a premium listing. FCA reforms have retained the requirements for admission and post-IPO, but have significantly reduced the sponsor’s involvement post-IPO to focus on targeted issuer events, including:
- transactions involving additional equity issuances and that require a prospectus;
- reverse takeovers;
- large related party transactions;
- transfers in and out of the ESCC category;
- where an issuer requests individual guidance from the FCA; and
- where an issuer seeks a modification or waiver from the UKLR from the FCA.
Indexation
FTSE Russell announced changes to its Ground Rules in light of the UKLR reforms in November 2024,[4] confirming that companies listed on the ESCC and new closed-ended investment fund categories would be the new index universe for the FTSE UK Index Series, replacing the premium segment.[5] Companies previously admitted to the standard segment would continue to be ineligible for the FTSE UK Index Series under the new regime. FTSE Russell has not introduced any additional eligibility requirements to replicate previous premium listing requirements.
Transitional Provisions and Next Steps
On July 29, 2024, issuers listed on the premium and standard listing segments were mapped automatically to the relevant new listing categories, subject to the application of certain transitional provisions for “in-flight” applications. Existing premium listed issuers were automatically mapped to the new ESCC category. Existing standard listed commercial companies were automatically mapped to the new “transition” category, which replicates the previous standard listing continuing obligations and is closed to new entrants. Such issuers now have the option to transfer to the ESCC category subject to meeting applicable eligibility requirements, however, the transition category has no fixed end date, so there will be no deadline for issuers to transfer out.
The final UKLRs represent an extensive overhaul of the UK listing regime.[6] The FCA intends to formally review the new listing regime in five years’ time to assess its impact on the market but has indicated its willingness to intervene earlier if necessary to ensure market integrity.
The EU Listing Act: Important Changes to the EU Market Abuse Regulation and the EU Prospectus Regulation
Regulation (EU) 2024/2809 of the European Parliament and Council of October 23, 2024 (the EU Listing Act)[7] makes important changes to the EU Market Abuse Regulation (EU MAR) and EU Prospectus Regulation (EU PR) that are aimed at alleviating some of the compliance burden for issuers, enhancing legal clarity, addressing disproportionate requirements for issuers and, importantly, increasing the overall attractiveness of EU capital markets, among other amendments.[8] The EU Listing Act entered into force on December 4, 2024.[9] These changes will have a significant impact — which we view as mostly positive — on the compliance practices of issuers listed in the EU.
The most important changes to EU MAR and EU PR are summarized below, along with a brief discussion of the potential impact of these changes for UK issuers.
Entry Into Force
Generally speaking, as an EU regulation, the EU Listing Act is directly applicable in all EU Member States; however, certain changes will apply on a staggered basis depending on their nature. In particular, some changes to EU MAR and EU PR will only become effective after 15 or 18 months.
A Brief Introduction To EU MAR
EU MAR was introduced in 2016 and establishes a robust framework to preserve market integrity and investor confidence with numerous rules aiming to prevent insider dealing, unlawful disclosure of inside information and market manipulation in the EU. In particular, EU MAR subjects issuers to extensive obligations, including as to disclosure and record-keeping, which have a direct impact on the daily operations of listed companies.
Generally, EU MAR has a broad scope of application, and applies to financial instruments admitted to trading, or for which a request for admission has been made, on an EU regulated market, multilateral trading facility or organized trading facility.[10] “Financial instruments” are defined broadly and include any transferable securities (whether equity or debt), money-market instruments, certain derivatives (including (amongst others) security, currency or interest rate derivatives whether settled physically or in cash, and (optional) cash-settled commodity derivatives), and emission allowances.
Key Changes to EU MAR
A. Disclosure of intermediate steps in protracted processes no longer required (Effective: June 5, 2026)
One of the key principles of EU MAR is that inside information must be disclosed as soon as possible when it arises, unless the issuer satisfies certain strict requirements allowing it to delay disclosure (see “Revised conditions for delayed disclosure of inside information” below).[11] This is a sensitive issue in so-called “protracted processes”, such as acquisitions, where inside information may crystallize at different stages.In such circumstances, immediate disclosure of inside information may sometimes prejudice the issuer (e.g., in the case of extended confidential negotiations) who may wish to keep certain information confidential. The approach under EU MAR is different than under the U.S. securities laws where companies can hold certain types of sensitive information for longer periods before triggering a disclosure obligation.
An important change introduced by the EU Listing Act is that disclosure of inside information related to intermediate steps in a protracted process will no longer be required where those steps are connected to bringing about or resulting in a non-final set of circumstances or event. Instead, the disclosure requirement will apply only to inside information related to the “final” circumstances or “final” event of the protracted process.[12]
In practice, this means that issuers will no longer have to choose between immediate disclosure or delayed disclosure in the initial stages of a particular project. This will be especially relevant for extended negotiations in the context of M&A transactions (including cross border M&A with an EU company as buyer or seller). Issuers will however still be obliged to ensure the confidentiality of any inside information. The prohibitions of insider dealing and unlawful disclosure of inside information will also continue to apply in full and the obligation to draw up insider lists will remain in place.
B. Revised conditions for delayed disclosure of inside information (Effective: June 5, 2026)
Under EU MAR, one key condition for issuers seeking to delay disclosure of inside information is that such a delay “[…]is not likely to mislead the public.” Pursuant to the EU Listing Act, this requirement will be replaced with a new condition requiring that “the inside information is not in contrast with the latest public announcement or other type of communication by the issuer […] on the same matter to which the inside information refers” – which is generally perceived as a loosening of the criteria for delaying disclosure.
The purpose of this change is to increase legal certainty and allow for a consistent interpretation of the conditions required for an issuer to take the decision to delay disclosure. The new condition will allow issuers to conclude with greater certainty that delaying disclosure is an option, especially if the issuer has not previously communicated on the matter to which the inside information relates.
Nevertheless, this new condition leaves room for interpretation. The European Commission is empowered to adopt a delegated act to set out a non-exhaustive list of such situations, which will likely be instrumental in ensuring the uniform application of this new criterion.
C. Market sounding regime: an optional safe harbor (Effective: December 4, 2024)
The EU Listing Act explicitly confirms that the market sounding regime is an optional safe harbor and not a mandatory procedure.[13]
As a result, disclosing market participants (DMPs) can decide whether or not to comply with the information and record-keeping requirements of the market soundings regime when gauging market interest. If they do, they will benefit from the statutory safe harbor. However, if they do not, they may still demonstrate the market sounding was carried out in the normal exercise of a person’s employment, profession or duties and will thus not be presumed to have unlawfully disclosed inside information. In such cases, DMPs remain nevertheless obliged to specifically assess whether the market sounding will involve the disclosure of inside information and make a written record of their conclusion.
D. Higher thresholds and new exemptions for managers’ transactions (Effective: December 4, 2024)
The Listing Act also introduced two important changes to the regime applicable to transactions by persons discharging managerial responsibilities (PDMRs) and their closely associated persons (CAPs):
- Higher thresholds. The threshold to notify the issuer and National Competent Authorities of transactions made by PDMRs and CAPs has been increased from EUR 5,000 to EUR 20,000. That being said, National Competent Authorities from EU Member States are allowed to increase the new threshold further to EUR 50,000, or to decrease it to EUR 10,000.
- New exemptions. The exemptions for transactions that PDMRs may conduct during a closed period[14] have been expanded as follows:
- the exemption regarding employee share schemes has been broadened to include employee schemes that relate to financial instruments other than shares; and
- a new exemption for trading during closed periods has been introduced based on the rationale that the PDMR trading prohibition should only cover transactions that result from active investment decisions made by the PDMR. We believe this is a positive development as it will provide greater certainty to PDMRs who may otherwise have concerns that they could violate EU MAR as a result of “passive” trades (e.g., a discretionary asset management mandate executed by an independent third party).
E. More proportionate administrative sanctions (Effective: June 5, 2026)
The EU Listing Act will make sanctions for violations of disclosure requirements more proportional to the size of the issuer. As a general rule, pecuniary sanctions for this type of violation will, subject to certain exceptions, be calculated as a percentage of the total annual turnover of the issuer.
Potential impact for UK issuers
Following the expiration of the Brexit transition period, the EU MAR framework ceased to apply to financial instruments admitted to trading on UK listing venues. However, the version of EU MAR applicable at the time was “onshored” and became part of UK domestic law (UK MAR). Until the EU Listing Act was adopted, EU MAR and UK MAR were largely aligned, which made it relatively easy for issuers to manage their obligations under both regimes. The revisions to EU MAR introduced by the Listing Act usher an era of greater divergence between the two regimes, in particular as a result of the new rules adopted in the EU in respect of any “protracted processes.” As a result, UK issuers with securities listed both in the UK and in the EU will have to comply with two different sets of rules to manage the same non-material public information and should prepare to adjust their existing processes accordingly. Further amendments to UK MAR are also expected in the coming year(s).
Now a few years following Brexit, the rules governing capital markets in the EU and the UK are growing increasingly apart, most notably, in the UK, as a result of the finalisation[15] of the new UK listing rules in July 2024[16] and the recent publication by the UK Financial Conduct Authority (FCA) of a far reaching consultation paper on proposed reforms to the UK prospectus regime.[17]
Reforms to the UK prospectus regime (including rules regarding the content and publication of prospectuses) under the Public Offer and Admissions to Trading Regulations are currently subject to consultation. New rules are expected to be finalised by the end of H1 2025 (subject to FCA approval) and to apply from late H2 2025. However, certain proposals already diverge significantly from the position under the EU Listing Act. For example, in the UK, it is currently proposed to raise the prospectus exemption threshold for secondary offerings and admissions to trading on a regulated market to 75%, in comparison to the 30% exemption threshold introduced by the EU Listing Act (see “Key Changes to EU PR” below). The other exemptions for fungible issuances have not been used widely in the UK debt market due to the ubiquity of the base prospectus format so it is unlikely to have a significant impact on UK issuers. The true level of divergence between the UK and EU capital markets regimes will only become clear once the new UK prospectus rules crystallize next year.
Key Changes to EU PR
In addition to the EU MAR changes discussed above, the EU Listing Act also introduced a number of key changes to EU PR,[18] which are summarized below.
A. Expanded and additional exemptions from the obligation to publish a prospectus (Effective: December 4, 2024)
- Prospectus Publication Exemption. A dual-threshold system now applies, i.e., below the threshold of either €12million (the principal threshold, increased from €8million) or €5million, offers of securities to the public will be exempted from the obligation to publish a prospectus, provided the offers do not require passporting.
- Fungible Securities Exemption. The exemption from the obligation to publish a prospectus for the admission to trading only (i.e., not involving a public offer) of fungible securities has been extended to apply to public offers, and the threshold for this exemption is raised from 20% to 30%, subject to certain conditions.[19]
- New Fungible Securities Exemption. A new exemption for both public offers and admissions to trading of securities fungible with other securities already admitted to trading for at least 18 months, regardless of size, subject to certain conditions.[20]
B. Streamlining prospectus content requirements
Two new simplified prospectus formats (Effective: March 5, 2026). The EU Listing Act introduces two new, simplified types of prospectuses:
- “EU Follow-on prospectus” for several categories of issuers with securities that have been admitted to trading on a regulated market for at least 18 months before the offer to the public and/or seeking admission to trading, or where the securities are fungible with such securities; and
- “EU Growth issuance prospectus” for small- and medium-enterprises that satisfy certain criteria.
The EU Follow-on prospectus will replace the current simplified disclosure regime for secondary issuances and EU recovery prospectuses under EU PR. The EU Growth issuance prospectus will have lighter content requirements than the current EU Growth Prospectus which it will replace.
Standardised and simplified prospectus disclosure (Most changes effective: June 5, 2026, unless becoming effective earlier). Key changes introduced by the EU Listing Act include the following:
- A standardised prospectus format is introduced for both equity and non-equity securities,[21] and prospectuses relating to equity securities shall be limited to a maximum of 300 pages. Prospectuses are required to be distributed in electronic format only and may (in certain cases) also be drafted in English only.
- Prospectuses may incorporate by reference an expanded list of documents, such as a universal registration document.
- Only two years of historical financial information will be required for an equity offering. Risk factors are also simplified, with the EU Listing Act clarifying that risk factors should not be generic and used as mere disclaimers and should be listed in a manner that reflects their significance, as determined by the issuer.
- Debt/non-equity prospectuses only:
- Issuers are now able to forward-incorporate annual or interim financial information, if it is within the 12-month period for which a base prospectus is valid.[22]
- Supplements to a base prospectus should not be used to introduce a new type of security for which the necessary information has not been included in the base prospectus.[23]
- It should also be noted that withdrawal rights will be extended from two to three days following the publication of a prospectus supplement.
- Prospectuses may incorporate by reference an expanded list of documents including, for example, an approved universal registration document (URD), sustainability reports included in management reports and the short-form document required for certain fungible exemptions referred to above.
- An issuer will only be required to have a URD approved by a National Competent Authority for one year (reduced from two years) before subsequent URDs can be filed instead. URDs will also be excluded from the new rules relating to standardising prospectuses discussed above.
- New prospectus content requirements will also be developed for EU Green Bond Standard prospectuses, aligned to requirements under the EU Green Bond Standard Regulation.
This article was prepared with contributions from Cleary trainee solicitor, Alexander Lees.
[1] Per the FCA “Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms” (December 2023) available here and the UK Listing Review, there has been a 40% decline in the number of companies listed in the UK between 2008 and 2020, noting that the UK accounted for only 5% of global initial public offerings of companies between 2015 and 2020.
[2] In January 2024, HM Treasury published “Public Offers and Admissions to Trading Regulations 2024 (SI 2024/105) (POAT Regulations)” available here, establishing the framework for a new UK prospectus regime. In July 2024, the FCA published “Consultation on the new Public Offers and Admissions to Trading Regulations regime (POATRs)” available here on the new prospectus regime, including rules set out in a new “Prospectus Rules: Admission to Trading on a Regulated Market” sourcebook which will replace the existing Prospectus Regulation Rules. The FCA aims to finalise the rules by the end of H1 2025.
[3] Cleary Gottlieb recently advised on Canal+ S.A.’s listing on the London Stock Exchange, one of the first listings within the Equity Shares – commercial companies listing category.
[4] FTSE Russell “FTSE Global Equity Index Series Ground Rules” (November 2024), available here.
[5] For more information on the FTSE changes to the UK Indexation Rules, see our March alert memo available here.
[6] For additional information, see our December 2023 alert memo available here and our July 2024 alert memo available here.
[7] Regulation (EU) 2024/2809 of the European Parliament and of the Council of October 23, 2024 amending Regulations (EU) 2017/1129, (EU) No 596/2014 and (EU) No 600/2014 to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises, available here.
[8] For additional information, see our prior memorandums published in October, available here and November, available here.
[9] The EU Listing Act package includes (i) a Regulation amending the Prospectus Regulation (Regulation (EU) 2017/1129), the Market Abuse Regulation (Regulation (EU) No 596/2014), the Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014), (ii) a Directive amending the MiFID II Directive (Directive 2014/65/EU) and repealing the Listing Directive (Directive 2001/34/EC), and (iii) a Directive on multiple-vote share structures in companies that seek the admission to trading of their shares on a multilateral trading facility.
[10] Following Brexit, EU MAR no longer directly applies in the UK, but substantially equivalent provisions have been onshored into UK domestic law. See “Potential impact for UK issuers” below.
[11] In such a case, a decision to delay disclosure is required for each new piece of information deemed to be sufficiently precise and of a price sensitive nature as to constitute inside information.
[12] The European Securities and Markets Authority (ESMA) has launched a consultation to gather feedback on the changes introduced by the EU Listing Act, including on non-exhaustive lists of (i) the protracted process and the moment of disclosure of the relevant inside information; (ii) examples where there is a contrast between the inside information to be delayed and the latest public announcement by the issuer. ESMA will review all feedback received and expects to deliver its final technical advice to the European Commission by April 30, 2025.
[13] “Market soundings” are communications of information to one or more potential investors prior to the announcement of a transaction, in order to gauge the interest of such potential investors in the possible transaction and its conditions, such as its potential size or pricing. These communications can be done by an issuer, a secondary offeror, or a third party acting on behalf of any of such persons.
[14] MAR prohibits trading by PDMRs during a period of 30 calendar days before their company’s announcement of its annual and (mandatory) interim financial reporting (so-called “closed periods”), unless certain stringent conditions are met, and the issuer allows such trade.
[15] For additional information, see our prior memorandum published in July, available here.
[16] FCA Policy Statement (PS24/6), “Primary Markets Effectiveness Review: Feedback to CP23/31 and final UK Listing Rules” (July 11, 2024), available here.
[17] FCA (CP24/12), “Consultation on the new Public Offers and Admission to Trading Regulations regime” (July 26, 2024), available here.
[18] The Prospectus Regulation sets out the requirements for the drafting, approval, and dissemination of the prospectus to be published in the event of a public offering or admission to trading on a regulated market located or operating within an EU Member State.
[19] The issuer may not be subject to restructuring or insolvency proceedings and is required to file and publish a short-form document with key information for investors.
[20] The new securities may not be issued in connection with a takeover, merger or division, nor the issuer be subject to restructuring or insolvency proceedings. The issuer is also required to file and publish a short-form document with key information for investors.
[21] ESMA is consulting on draft technical advice concerning the EU Prospectus Regulation. ESMA’s consultation addresses the (i) content and format of prospectuses, including the additional information to be included in prospectuses for non-equity securities that are advertised as taking into account ESG factors or pursuing ESG objectives; and (ii) criteria for the scrutiny and the procedures for approval of prospectuses. ESMA will consider all feedback received and expects to publish final technical advice in Q2 2025.
[22] Annual updates will still be required to maintain listing, but a supplement will not be required for annual or interim financial information.
[23] ESMA intends to launch a consultation in Q1 2025 on draft guidelines specifying the circumstances in which a supplement will be considered to introduce a new type of security into a base prospectus.