Blocking Listings on National Security Grounds

In November 2020, the Government noted that work undertaken by HM Treasury as part of its 2019 Economic Crime Plan had demonstrated that there were also remote but possible scenarios in which a company listing in the UK could be detrimental to the nation’s security.[1] The Government announced its intention to take a precautionary power to block listings on national security grounds. Such a power would operate alongside other safeguards, such as anti-money laundering legislation and criminal checks taken as part of the Senior Managers and Certification Regime.[2] The Government anticipates that this power would be used in a very small number of exceptional cases.

On 7 June 2021, HM Treasury launched a public consultation on introducing a power to block listings on national security grounds (the “Consultation”). The Consultation examined the scope of such a power and the nature of the disclosures to be required as part of such a power. A summary of the responses received to the Consultation was published in December 2021 (the “Responses”). Eight responses were received to the eight questions asked in the Consultation.

The General Scope

Ultimately, the Responses were supportive of the Government’s objectives to take a power to block listings on national security grounds and agreed with the intended scope of the power, which is that it will apply to all initial equity listings and admissions on UK public markets (regardless of whether or not the company has any international connections) but will not apply to secondary trading. Therefore, the power would apply to:

1. shares, securities representing equity such as Global Depositary Receipts, and convertible securities;
2. regulated markets and Multilateral Trading Facilities (“MTFs”) (including for example the SME Growth Markets, such as AIM or the Aquis Exchange) that allow primary equity listings; and
3. initial public offerings (“IPOs”) and non-traditional listing structures, such as introductions (also known as direct listings) and special purpose acquisition companies (“SPACs”).[3]

Some of the Responses queried whether MTFs should be included given the smaller valuations involved and the need for detailed and extensive engagement with MTF operators. It was also noted that the application of the proposals to SPACs would require further consideration given that different disclosure requirements could be more useful in the context.

The Responses agreed that debt securities should be excluded from the scope.

The Disclosures

The Consultation noted that the Government is considering an early disclosure option, to allow companies to engage with the Government before the point of submitting an admission document or prospectus to the applicable market or regulatory body. The Responses were supportive of this proposed pre-clearance process.

Chart 4.A of the Consultation (see table below) outlined the disclosures which would be expected to be made in order for the Government to make its decision and noted these disclosures are likely to already be made in the relevant listings process. The Responses agreed that the disclosures outlined were proportionate and reasonable and would not add a material burden as the provision of this information is generally part of the listing or admission process.

However, the Responses did raise several concerns, including:

1. requesting clarity on the numerical threshold for defining what a ‘major shareholder’ is and noting that this could create a burdensome obligation if this includes beneficial ownership and control;
2. the need for a fast-track procedure as non-executive directors are often appointed close to the IPO occurring;
3. the potential for background and intelligence checks taking time to complete and being seen as a burden;
4. requesting clarity on the extent of diligence a company is expected to undertake to ensure the information disclosed is accurate; and
5. the importance of clarity early in the process, including clear deadlines for decisions.

Next Steps

This power will require legislation. However, more policy development and consultation is required before this can occur. No guidance has been provided about a potential timeline.

Consultation Chart 4.A: Disclosure requirements for issuers for the purposes of national security screening of listings

[1] Article 19 of the Economic Crime Plan Statement (11 November 2020)

[2] This regime is made up of the Senior Managers Regime, the Certification Regime and the Conduct Rules which were implemented by the Financial Services and Markets Act 2000 (as amended by the Bank of England and Financial Services Act 2016 and through changes to the FCA Handbook of rules and guidance).

[3] 3.6 of the Consultation