London’s world-class reputation for corporate governance is at risk if the City regulator presses ahead with plans to water down stock market rules for companies owned by sovereign wealth funds, business leaders have warned.
The Financial Conduct Authority published plans last month to introduce rules that were regarded as an attempt by the regulator to attract the world’s biggest ever flotation – of Saudi Aramco, Saudi Arabia’s state oil company – to London. The City is eager to safeguard its position as a leading financial centre after the Brexit vote.
Aramco is in the process of deciding which financial centre to choose for the sale of 5% of its shares. The company could be valued at $2tn (£1.5tn) in a move that would generate hundreds of millions of dollars in fees for investment bankers, lawyers and other advisers.
But in a critical assessment of the FCA’s proposals, the Institute of Directors said that while the short-term desire to attract foreign companies to London was understandable, a relaxation of the rules might harm the UK’s reputation for strong corporate governance, diminishing its competitive advantage in the long term.
“The IoD is strongly committed to sustaining the City of London as a global financial centre as we embark on leaving the European Union. Attracting leading firms from around the world to list on the London Stock Exchange will be increasingly important, and this could include sovereign-owned companies,” said Stephen Martin, the director general of the IoD.
The group said the proposals did little to address the risks associated with sovereign-controlled companies, including political interference and the ability of national governments to undermine the rights of minority shareholders and the authority of directors.
The FCA’s proposals would allow state-owned companies to qualify for a premium listing on the London Stock Exchange in a newly created sub-segment that exempts them from two criteria generally required before a company can be listed. One relates to how the company and the controlling shareholder conduct deals with each other, and the other allows investors a vote on independent directors.
The IoD urged the FCA to not only reconsider its plans to waive current rules to accommodate such companies, but to strengthen them.
“Good corporate governance serves to enhance business performance, protect investors and maintain the reputation of UK plc and we do not believe the proposals in the consultation paper seek to strengthen these objectives,” Martin said. “We have no objection to the creation of a new sub-set of the premium listing category for sovereign-controlled companies. However, the proposed rule changes for the new premium listed category are unjustified and could create governance problems.”
The FCA said it would not comment on “individual consultation feedback”, but last month Andrew Bailey, the chief executive of the regulator, justified the changes on the basis that sovereign owners behave differently to other companies.
The deadline for consultation submissions to the FCA is 13 October.
Despite its size, Saudi Aramco would not quality for an entry in the FTSE 100 under the index’s rules. As well as a premium listing in London, the rules include an assigned nationality of UK, and minimum free floats of 25% of a company’s shares for UK incorporated companies and 50% for non-UK incorporated companies.
guardian.co.uk © Guardian News and Media Limited 2010