AIC and consumer lobby fear easing of rules will undermine investor protection
By Keren Holland
The FSA has been urged to rethink proposals to amend the stock exchange listing rules for offshore investment companies, because of fears they will undermine investor protection.
The Financial Services Consumer Panel and Association of Investment Companies (AIC) have spoken out about the changes, for which the consultation period closed last week.
The regulator is proposing to allow overseas investment companies to list on the London Stock Exchange (LSE) under the European minimum directive criteria, or "chapter 14", which involves lighter regulatory obligations than UK-based companies, which are required to list under "chapter 15".
The change would allow the UK to compete with other stock exchanges, such as Euronext, which already apply the minimum directive criteria.
William Simpson, partner at law firm Ogier, said the UK had nothing to fear from lightening the regulatory obligations for companies listed in jurisdictions such as Guernsey. He said: "The level of regulation in Guernsey is high. Because overseas companies from places like Guernsey are regulated, there really is no need to apply the same standard.
"I think this is a real opportunity for both Guernsey and London because if the standard required for London listing is lowered, for appropriate companies such as those regulated in Guernsey, I think we are going to see more business and, equally, the LSE is going to see more business."
Greg Branch, partner at Deloitte in Jersey, said there were concerns the changes would create an uneven playing field between onshore and offshore investment funds, because onshore companies would be subject to the stricter rules. He said: "The AIC believes if this change happens, more entities than hitherto will migrate offshore because they will see the attraction of only having to comply with a lighter touch requirement under chapter 14."
But Branch said he did not believe the changes would lead to a significant number of funds being set up offshore. He said: "The offshore environment already has attractions for listed entities, irrespective of the chapter they are listed under.
"You only have to see the growth in the market in recent years where the majority of investment entities that are listing are based in the Channel Islands."
But Daniel Godfrey, director general of the AIC, claimed the changes threatened the future health of the investment company sector in the UK. Speaking at the AIC's annual conference, he said: "Retaining chapter 14 would turn London into a commodity with lowest common denominator standards and poses unacceptable risks to investor wealth."
Dan Waters, sector leader for asset management at the FSA, told the AIC at its annual conference that it would take the concerns into account. But he added: "Virtually all new applicants for listing are Channel Islands vehicles and therefore overseas companies under the listing rules.
"If we are not prepared to offer this choice, does it not seem obvious that issuers will increasingly choose European jurisdictions which do provide such a regime?"
Partner Insight: Continuing the Architas education series for clients.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews