The City watchdog is facing questions from MPs over its proposed rule changes that could lure the multi-trillion listing of oil giant Saudi Aramco to London.
Tory MP Nicky Morgan and Labour MP Rachel Reeves, who chair the Treasury and business select commitees respectively, have written to the Financial Conduct Authority demanding it explain its proposals which would create a new category exempting state-controlled companies from certain rules that apply to other “premium” firms.
Aramco is planning to list 5% of its shares. The FCA plan would allow state-controlled companies to side-step rules that would otherwise oblige them to float at least a 25% stake to gain a premium status.
Image: The London Stock Exchange could host the float under the proposed rule changes
Without the rule change, it might have to take a “standard” listing seen as less attractive for investors and companies, with lower corporate governance requirements.
London is battling with exchanges around the world to host the lucrative float of Aramco, which is said to be valued at more than $2tn (£1.55tn) – a figure that would make it the biggest share flotation in history.
A listing in the capital would be seen as a major victory for the City, especially as it faces the threat of losing parts of its business to Europe thanks to Brexit.
There has already been some opposition to the idea of bending the rules, with institutional investor Royal London Asset Management saying in June that special concessions for Aramco would be “highly inappropriate”.
The Institute of Directors director-general Stephen Martin described it this week as “unjustified” and having the potential to create “governance problems”.
Image: Tory MP Nicky Morgan (top) and Labour MP Rachel Reeves have written to the FCA
In a joint letter to FCA chief executive Andrew Bailey, the parliamentarians warned the flotation must not compromise Britain’s “highly regarded” corporate governance standards.
They also demanded to know what discussions it has had with ministers regarding “the balance between attracting foreign investment and maintaining the integrity of the UK markets”.
They wrote: “We are interested to explore the rationale for this consultation, particularly given the concerns expressed by stakeholders that these proposals would weaken protection for private investors against interference from foreign sovereign company owners.
“In this context, what discussions has the FCA had with the Financial Reporting Council about the potential impact on the generally highly regarded UK model of corporate governance, both before and after publication of the consultation paper?”
The FCA is reaching the end of its consultation on the proposals and aims to reveal its conclusions by the end of the year.