Summary

Earlier on this month, HM Treasury published a consultation (the “Consultation”), “Power to block listings on national security grounds: Economic Crime Plan – Acton 19”. The proposals are separate to the Government’s power to block acquisitions and investments on national security grounds in the recently enacted National Security and Investment Act 2021.

We consider the Consultation in this article.

Background

As part of the Economic Crime Plan in 2019, the Government announced that it would investigate concerns raised about the possible links between a listing and national security. This followed questions raised in Parliament and by parliamentary committees concerning the role of the Government in assessing listing applicants and whether appropriate security checks had been undertaken.

Work undertaken by HM Treasury demonstrated that there were “remote but possible scenarios” in which a company listing in the UK could be detrimental to the nation’s security.

As a result, the Government now intends to implement a “precautionary power” to block listings on national security grounds, with the intention of helping to maintain the UK’s status as a world-class destination for listings.

The Consultation states that the Government intends that this will be a “targeted” power that will have minimal impact on the listing process and will not affect the vast majority of companies seeking to raise capital on UK financial markets.

One illustrative scenario is provided in the Consultation as to when the Government may consider use of the power appropriate:

“Company A is an energy and technology company based in Country A.

Country A was recently under UN sanctions for its nuclear programme and

these were lifted only recently. Country A’s Energy Minister partly owns

Company A. Proceeds from the listing will be used to further Country A’s

nuclear weapon capability and enable Country A to accelerate its nuclear

weapons programme.”

The proposals

Broadly, the proposals are as follows:

  • A new power for the Government.
  • The power would apply to all initial equity listings and admissions (in the broadest sense) including the London Stock Exchange’s Main Market, High Growth Segment, Professional Securities Market and AIM, as well as the NEX Exchange Growth Market.
  • The power would not apply to secondary trading.
  • The scope of the power would include:
      1. shares, securities representing equity, such as global depositary receipts, and convertible securities. However, the Government does not currently intend to include listed debt securities;
      2. regulated markets (including the London Stock Exchange’s Main Market) and multilateral trading facilities (including the Alternative Investment Market, the SME Growth Markets and the Aquis Exchange); and
      3. initial public offerings and non-traditional listings structures (including special purpose acquisition companies).
  • Certain information would need to be sent to the Government in parallel with an admission process to enable the Government to assess whether to block a listing.  Such information would include, as part of a business overview, the nature of its operations and the markets in which it competes, and the identity of its managers and ultimate controllers. Given that much of this information already needs to be disclosed as part of existing admission processes, the Government do not consider this will present a significant burden for issuers.
  • An “early disclosure option” is being considered such that a company can seek assurance from the Government that its listing would not be blocked before it prepares and submits the documentation for that listing.

Next steps

The Consultation closes on 27th August 2021. The Government will consider responses to the Consultation and will then publish a formal response. Further technical consultations may be required to develop the framing of the power.

Comment

Although the Consultation might, on a first pass, appear contrary to the Government’s efforts to encourage more flotations in London and the recent recommendations in Lord Hill’s UK Listing Review (which focused on streamlining the listing process and increasing flexibility for potential equity issuers in order to attract high quality growth companies to London markets), it is probably more reflective of the current political trend for safeguarding national state and commercial secrets (including intellectual property and technologies) and the perception within Government that it lacks an important tool in its armoury to combat international sanctioned persons and related risks.

If the power is framed sensibly and it is only used in a targeted manner, it is unlikely to materially impact the number or size of flotations in London.

Rosenblatt can help

We have a wealth of experience across diverse sectors and closely collaborate with institutions, large and small companies (both public and private), start-ups and individual entrepreneurs. We advise on all aspects of corporate governance and M&A and private equity transactions.

Contact us

Should you have any questions or wish to discuss or to submit responses to the questions set out in the Consultation, please contact your usual contact at Rosenblatt or the authors named below.

Authors

Jon Lovitt, Partner

Jeremy Landau, Partner

Christopher Allen, Partner

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