A number of UK pension schemes have raised concerns that the Financial Conduct Authority's (FCA) listing proposals could risk “undoing stewardship progress”, calling for a broader, evidence-based policy discussion.

A total of 10 pension schemes co-signed a letter in response to the FCA's consultation on primary markets effectiveness, warning that the current proposals would dilute investor protections and exacerbate current issues.

Although the letter welcomed the public debate about how to create vibrant UK capital markets which attract high-quality, innovative firms and high-quality, thoughtful investors, it also emphasised industry concerns.

In particular, the letter suggested that the proposals would roll back fundamental investor protections, such as the right to a shareholder vote on both significant and related party transactions, as well as the equal voting rights that serve as the foundation of a fair and democratic capitalist system.

This, in turn, could dilute investors’ ability to act as robust stewards of members’ asset, and potentially diminish the UK’s reputation as the world’s leading ‘quality’ market and its role as an example for high corporate governance standards.

Considering alternative measures, the group revealed that individual schemes’ discussions with companies, IPO advisers, and investment managers, has found that innovative companies are primarily looking for fair valuations, a stable policy, economic and political environment, and a deep, liquid pool of long-term domestic and international capital.

Given this, the letter argued that policymakers should pause their current proposals and seek to implement other, evidence-led measures to address these fundamental issues.

The signatories to the letter were: Railpen, Brightwell, Brunel Pensions Partnership, The Church of England Pensions Board, HSBC Bank (UK) Pension Scheme, Merseyside Pension Fund, Nest, People's Partnership, TPT Retirement Solutions, and Universities Superannuation Scheme (USS).

The letter stated: "We are responsible for the retirement outcomes of millions of British citizens who work and live in the UK. We naturally want to see the UK continue to thrive as a global financial centre.

"However, we do not think that the changes proposed will solve the fundamental issues affecting our equity markets. Rather, we think that they will amplify the current challenges as well as leading to worse outcomes for our members.

"We also do not believe that policymakers have provided the necessary evidence to support yet further changes to the UK listings regime (taking place only 18 months after the previous changes were implemented).

"We look forward to a broad and evidence-based policy discussion that includes, and listens to, voices from across the entire capital markets ecosystem. This discussion should include serious consideration of the asset owner perspective, given our role at the top of the investment chain and close alignment of interests with those of our members."

Adding to this, Railpen senior investment manager, Caroline Escott, stated: “As UK pension schemes, we naturally want to see the UK continue to thrive as a global financial centre.

“Pre-IPO companies and advisers, as well as available academic evidence, tell us fair valuation issues are a key challenge.

"Such valuations are driven by a large volume of liquid, high quality institutional and retail investor capital – volumes which come in turn from investor confidence in the protections they are given as well as policy, political and economic stability.

"Proponents of a more relaxed UK approach to shareholder rights underestimate the extent to which investor-friendly corporate governance standards have shaped the UK’s attractiveness on the world stage. We look forward to a broad discussion which considers voices from across the entire capital markets ecosystem

The Pensions and Lifetime Savings Association (PLSA) raised similar concerns over the proposals, warning that they could weaken shareholder rights by removing some important checks and balances, in particular for asset owners and retail investors, leading to a lack of diverse input and challenge from asset managers to companies.

Indeed, the PLSA argued that the current proposals may not result in more companies listing, but reduce the standards expected of existing companies, meaning that they could have a contrary effect to what is hoped for, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies.

The PLSA also noted that while one of the main arguments within the consultation is for the introduction of a single listing category is the “widely discussed concerns around the long-term decline in number of UK listed companies", it is not proven that governance standards and investor protections required by a premium listing are, specifically, the root cause of the decline.

Given this, the PLSA said that it would instead be supportive of an evidence-based, cross-governmental investigation into the root causes of this decline, which could then provide the appropriate basis for solutions which genuinely make a difference and continue to require shareholder approval in circumstances which warrant this.

PLSA deputy director of policy, Joe Dabrowski, commented: “The UK is an attractive market for international investors precisely because our governance standards are high. Companies achieving a UK listing is a powerful signal that a company is well-run and well-placed to thrive now and over the long term.

“As they are set, the current proposals may not result in more companies listing, but will reduce the standards expected of existing companies (diluting quality universally).

"The new rules run the risk of having a contrary effect to what is hoped for, by potentially reducing the pool of institutional and retail investors willing to invest in UK-listed companies.

“This is because rolling back these fundamental investor protections means that asset owners would find it more challenging to act as effective stewards of their assets, which in turn would make them less certain that investing in a UK-listed company could lead to the sustainable financial returns scheme members and other savers need.”

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