Local authority pension funds raise alarm over stock exchange corporate governance rules

In a series of letters sent to the London Stock Exchange Group (LSEG), the Forum called for the exchange to make public any evidence it has that links listing rules with fewer listings or less investment.

The rules were updated in July 2024, in what the Financial Conduct Authority (FCA) described as the "most significant changes” to the UK’s listing regime in over 3 decades.

The changes make it easier for companies to be listed in order to bring the UK in line with other competing countries, according to the FCA.

However, the Local Authority Pension Fund Forum (LAPFF), which represents 87 UK public sector pension fund members and seven pools with combined assets of over £350bn, has questioned the changes and the involvement of the Capital Markets Industry Task Force (CMIT) in the decision.

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The CMIT, established in consultation with the Government in 2022 and with the goal of driving reform in the UK's capital markets, has been a proponent for the relaxation of listing rules. CMIT is chaired by Julia Hoggett, Chief Executive of the London Stock Exchange and makes recommendations to the Government on regulatory change.

In May the pensions forum’s chair, Doug McMurdo, wrote a letter to the chair of the LSEG, Don Robert, stating: “LAPFF has long held the position that governance standards and the UK Listing Regime need to be strong.

“These represent core elements of investor protection. Large pension funds will often be captive investors in whatever comes to listing on the London market by virtue of passive investing in the form of indexation.”

It added: "We are therefore very concerned that an active role is being pursued by the London Stock Exchange that runs counter to our view, particularly in the shape of the central role being taken by the Chief Executive of the London Stock Exchange (‘LSE’) in the Capital Markets Industry Task Force."

He added that the forum was concerned that CMIT's position on listing rules is "neither evidence based nor balanced, and some positions have little credibility in basic terms".

It went on to ask LSEG to make public any evidence it has regarding any link between the listing rules resulting in fewer listings or less investment.

The LSEG responded to the May correspondence, but the forum expressed dissatisfaction with the response.

A statement issued by LSEG in May, said: “We see the reforms proposed by the FCA as a good balance between empowering investors through good disclosure, without preventing companies from accessing our markets due to unnecessarily onerous eligibility requirements.”

In August, the LAPFF wrote back to the LSE, reiterating that: "What has been said by the CEO of the LSE, as the chair of the Capital Markets Industry Task Force (‘CMIT’), in respect of the relaxing of the listing regime, does not present the requisite analysis and or evidence that would stand up to market rigour.
"It is on this basis we remain firm."

Adam Carey