U.K. retirement plans challenge FCA's listing reforms

The largest U.K. retirement plans warned Wednesday that the Financial Conduct Authority's listing reforms will stifle their stewardship efforts.

Ten U.K. retirement plans with about £300 billion ($381.4 billion) in assets sent an open letter to the FCA with concerns that current proposals would dilute investor protections and exacerbate current issues.

For example, the reforms could 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, the letter said, meaning it would dilute investors' stewardship efforts.

The FCA has been consulting on reforms, which are aimed at relaxing the rules for a public listing to improve the competitiveness of the U.K. equity market. The proposals include replacing current standard and premium listing share categories with a single listing category for issuers.

But the retirement plans want to ensure that the U.K.'s high corporate governance standards and robust investors' protections are maintained, they said in their letter.

Signatories to the letter are:

• Railpen, the in-house manager of the £37 billion Railways Pension Scheme, London.
• Brightwell, the in-house manager of the £47 billion BT Pension Scheme, London.
• Brunel Pensions Partnership, Bristol, England, the pool of local authority pension funds with £30 billion in assets.
• £3.2 billion Church of England Pensions Board, London.
• £37 billion HSBC Bank (U.K.) Pension Scheme, London.
• £11 billion Merseyside Pension Fund, Liverpool.
• £30 billion National Employment Savings Trust, London.
• £21 billion People's Partnership, Crawley, England.
• £10.3 billion TPT Retirement Solutions, Leeds.
• £90.8 billion Universities Superannuation Scheme, London.

Commenting on the letter, Michael Marshall, head of investment risk and sustainable ownership at Railpen said in a news release Wednesday: "The FCA's current proposals risk watering down that quality and reducing the pool of institutional and retail investors willing to invest in U.K.-listed companies."

Caroline Escott, senior investment manager at Railpen, added in the news release: "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 U.K. approach to shareholder rights underestimate the extent to which investor-friendly corporate governance standards have shaped the U.K.'s attractiveness on the world stage."

Diandra Soobiah, head of responsible investment at defined contribution multiemployer NEST, added in a separate emailed comment: "Weakening the listing rules and the link between shareholders and companies, particularly in allowing a dual class share structure, will likely dissuade investors from going into listed U.K. companies because it will be more challenging to act as effective stewards of their assets."

The U.K. Pensions and Lifetime Savings Association said Wednesday in a separate news release that the current proposals might not result in more companies listing, but they will reduce the standards expected of existing companies. 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 U.K.-listed companies, the PLSA said.