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UK accused of ‘watering down’ rules to accommodate Saudi

October 17, 2017 at 2:21 pm

The UK’s Financial Conduct Authority (FCA) has come under fire over its alleged “watering down” of rules to allow Saudi Arabia’s state-owned oil giant, Aramco, to float in London.

London, which has one of the largest financial centres in the word, is competing with the likes of New York for the 2018 planned floatation of five per cent of the company’s assets said to be worth $2 trillion.

One of UK’s largest investment groups has claimed that the FCA is making unacceptable compromises in a bid to win the lucrative business deal which would be a massive boon for the City’s financial sector.

The Times reported that concerns were raised by the Investment Association, a lobby group for fund managers, over the FCA’s decision to create a new “Premium Listing” and set aside existing rules.

Ordinarily, any company that wants to list in London has to ensure that least 25 per cent of its shares are made available to investors, to stop any one group from having too much influence. However, Saudi Aramco only wants to list five per cent of its shares in London in order to raise funds for the overhaul of the country’s economy.

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Investor groups have pointed to a meeting between the FCA and Aramco officials prior to the unveiling of the proposal to change listing rules. In a letter to the UK’s Treasury Committee and the Chair of the Business, the chief executive of the FCA Andrew Baily mentioned that the authority “held conversations with Saudi Aramco and their advisors in light of their interest in a possible UK listing in the early part of this year”.

In their statement to MEMO the FCA denied bending the rules to accommodate the Saudis saying: “As background, we are not ‘bending the rules’, we are putting forward proposals to address feedback we have received from the market but also to address the difficulties.”

The statement explained that the “existing rules were not drafted with these types of companies (sovereign state companies) in mind and they do not fit neatly within the current regime. We are seeking to create a premium listing category to accommodate sovereign controlled issuers who are willing and, more importantly, able to meet the highest possible standards they can faithfully adhere to. The alternative is that these companies do not list at all or seek a standard listing which has lower standards of governance.”

On the 25 percent requirement FCA said “these proposals do not suggest any changes to rules that are already in place” and made reference to the FCA handbook which clarified that “the FCA may modify to accept a percentage lower than 25% if it considers that the market will operate properly with a lower percentage in view of the large number of shares of the same class and the extent of their distribution to the public”.

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