Britain’s financial reporting regulator is proposing changes to auditing rules in an effort to attract listings from Chinese companies, a move signaling a concerted attempt to revitalize London’s capital markets amid a prolonged period of sluggish activity. The Financial Conduct Authority (FCA) is considering easing restrictions on corporate governance structures, specifically those related to dual-class share structures, to align more closely with practices permitted in China and other international financial centers.
The proposed adjustments arrive as London struggles to compete with exchanges in New York, Hong Kong, and Zurich for initial public offerings (IPOs). Chris Hayward, policy chairman of the City of London Corporation, emphasized the necessitate to secure more IPOs for London, particularly as businesses increasingly appear across the Atlantic for opportunities. Hayward, speaking from Shanghai, highlighted the potential of the existing China-UK stock connect program to facilitate listings and funding for Chinese firms.
The stock connect program, initiated in 2019, allows companies listed on either the London or Shanghai Stock Exchanges to issue depository receipts on the other exchange. But, uptake has been limited, with only a handful of Chinese firms, including Huatai Securities Co., having listed in London, raising a total of $6.6 billion. Beijing and London earlier this year pledged to deepen economic and financial ties, with a specific focus on boosting the stock connect program.
A key factor driving the regulatory review is a 2023 amendment to China’s Company Law, which introduced a new regime for dual-class share structures. According to John Xu, a corporate partner at Linklaters in Hong Kong, this change potentially reduces the obstacles for Chinese companies with such structures to list on the London Stock Exchange. The FCA’s move aims to address concerns that previous regulations were too restrictive, hindering the ability of Chinese businesses to access capital in London.
The proposed changes are also intended to address broader issues impacting London’s attractiveness as a listing venue. Recent reforms to the listing regime, implemented in July 2023, introduced new listing categories and greater flexibility, aiming to remove the previous “two-tier” standards. A new category of secondary listing for international companies offers a more relaxed regime for eligible firms. However, the impact of these changes on attracting Chinese listings remains to be seen.
The move to attract Chinese listings occurs against a backdrop of strained Sino-British relations, particularly concerning China’s actions in Hong Kong. The timing of the regulatory review, coupled with the revival of the Shanghai-London Stock Connect, is being closely watched for any indication of a shift in the UK’s approach to economic engagement with China. The FCA has not publicly commented on the specific timeline for implementing the proposed changes, nor has it detailed the extent of the revisions to auditing rules.
