The Financial Services Consumer Panel has warned that the Financial Services Authority's proposals to amend the stock exchange listing rules for offshore investment companies threaten to undermine investor protection for the sake of attracting non UK-based companies to list in the UK.
In a letter to the FSA, the Consumer Panel has expressed concern that while the proposed new measures will enhance the attractiveness of the London Stock Exchange to private equity vehicles and those wishing to follow alternative investment strategies, this would be at the expense of investor protection.
An FSA consultation paper is proposing to allow overseas investment companies to list under Chapter 14, with lighter obligations than UK based companies listing under Chapter 15. By applying the European minimum directive criteria, the Panel says that a range of consumer protection measures will be lost – many of which were introduced in 2004 after the splits "crisis", and which have been relied on to assure the government and market that another similar crisis should not occur.
The Consumer Panel cautions that the proposed change by the FSA could mean the reduction of protection measures such as: the spread of investment risk; publishing of investment policy; prohibitions on substantial cross-shareholdings; and the independence of board members and investment managers. These protections have wide industry support, and have done a lot to boost investor confidence in the wake of the splits crisis, the Panel noted.
John Howard, Chairman of the Financial Services Consumer Panel commented:
"We think that, with its current proposal, the FSA is at risk of making a serious mistake that will be damaging for investors and damaging for the confidence of the market."
He concluded:
"Indeed, a consequence would be that there would be a lighter touch regime for the companies which pose the greatest potential risk for investors – a reversal of the FSA's normal risk-based policy."
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