FCA attracts controversy in allegedly seeking to water down rules to lure Saudi oil giant’s IPO to London

(qlmbusinessnews.com via theguardian.com – – Fri, 13 Oct 2017) London, Uk – –

Regulator has attracted controversy by allegedly seeking to water down rules to lure Saudi oil giant’s IPO to London

The chief executive of the Financial Conduct Authority has admitted meeting officials from Saudi Aramco before publishing plans to water down rules in a move intended to lure the $2tn (£1.5tn) stock market listing of the oil giant to London.

Andrew Bailey told MPs that the meeting with officials from the Gulf kingdom’s state oil company – which is planning the world’s biggest ever flotation – took place in the early part of this year.

In July the FCA launched its consultation on creating a new category for firms listing on the stock market that are controlled by a sovereign country. It has faced criticism that the weakening of the rules will damage London’s reputation for protecting shareholders in companies with dominant owners.

But Bailey insisted the new category would not weaken protection for investors and that those who did invest in companies in the new group would know what they were buying.

He was replying to a letter from Nicky Morgan, the Conservative MP who chairs the Treasury select committee, and Rachel Reeves, the Labour MP who chairs the business, energy and industry committee, about the background to the proposed changes and whether there had been any political interference.

His response is likely to inflame the row at a time when London is vying with New York for the lucrative listing in a battle that is regarded as a key challenge for the City in the run-up to Brexit. In April, Theresa May and Xavier Rolet, chief executive of the London Stock Exchange, visited Riyadh to meet Aramco’s chief executive, Khalid al-Falih, who is also the kingdom’s energy minister.

Bailey said Treasury officials had been informed about the consultation in March and that the economic secretary to the Treasury had been told because he was having an introductory meeting with the new City minister, Stephen Barclay, 48 hours before the publication was launched. Other than that, Bailey said, he had not conversations with ministers on the subject.

He said the FCA routinely had meetings with companies considering a flotation in London and would not usually disclose these meetings. “However, given the public discussion of these events we can confirm that we held conversations with Saudi Aramco and their advisers in light of their interest in a possible UK listing in the early part of this year. We emphasised during those conversations that we were reviewing the listing regime,” Bailey said.

But Morgan said: “Questions remain about the level of political involvement in the consultation. The UK’s world-class reputation for upholding strong corporate governance mustn’t be watered down.”

Reeves added: “What may well be good for City traders is not necessarily good for the rest of the country’s economy or investors.”

The FCA’s consultation ends on 13 October and investors and trade bodies have continued to raise their concerns. Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, said: “While we fully support the case that the UK must stay competitive in a growing global marketplace, we do not think rewriting the rules is the correct way to go about it.”

Stephen Martin, the director general of the Institute of Directors, said: “We see no overwhelming reason to believe that states should be treated differently to other controlling shareholders. If anything, the risk for minority investors of having their interests ignored are greater, as the state will be subject to other domestic pressures.”

Bailey said in his letter that the proposals matched recommendations made by the Treasury to the FCA at the time of the budget in March. “The recommendations include the point that London retaining its position as the leading international financial centre supports the aim of sustainable economic growth,” said Bailey.

The FCA proposals would enable state-owned companies to qualify for a premium listing – which has more onerous corporate governance rules and is valued by investors – but escape two key hurdles. One relates to how the company and the controlling shareholder conduct deals with each other; the second allows investors a vote on independent directors.

By Jill Treanor