The FCA’s Listing Rules changes for SPACs

Syed Rahman of Rahman Ravelli details the Financial Conduct Authority’s just-published final rules and changes to its Listing Rules for certain special purpose acquisition companies.

It was 30 April 2021 when the Financial Conduct Authority (FCA) consulted on proposals to remove the presumption of suspension for special purpose acquisition companies (SPACs) that meet certain criteria. The proposals were intended to strengthen protections for investors while ensuring smooth functioning of the market. 

These changes were designed to provide an alternative approach for SPACs, which would otherwise provide detailed information about a proposed target to the market to avoid being suspended. Their ultimate aim, it could be argued, was to lure some of the lucrative SPAC market to London.

The FCA’s Original Proposals

The FCA said that it required additional safeguards for investors if SPACs were to benefit from this alternative approach.

These included:

• A ‘redemption’ option, allowing investors to exit a SPAC before any acquisition was completed.
• Ensuring money raised from public shareholders was ring-fenced.
• Shareholder approval being required for any proposed acquisition.
• A time limit on a SPAC’s operating period if no acquisition is completed

Any SPAC issuers that were unable or unwilling to meet the conditions was to continue to be subject to a presumption of suspension.

The Finalised Proposals

Having received feedback on its proposals, the FCA has made alterations to its draft plans.

The main changes are: 

• Lowering the minimum amount a SPAC would need to raise at initial listing from £200 million to £100 million.
• Introducing an option to extend the proposed two-year, time-limited operating period (or three-year period, if shareholders have approved a 12-month extension) by six months, without needing to obtain shareholder approval. The additional six months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced.
• The FCA modifying its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance, which sees the presumption of suspension disapplied.

The final rules, which come into effect on 10 August 2021, aim to give larger SPACs more flexibility. This flexibility is offered, says the FCA, “provided they embed certain features that promote investor protection and the smooth operation of our markets’’. Private companies listing in the UK via a SPAC will still be subject to the full rigour of the FCA’s listing rules and transparency and disclosure obligations.

The FCA is emphasising that risks will still be associated with SPACs, as they are often a complex investment that require thorough assessment before any commitment to investing. Issues such as their capital structure, likely returns, possible conflicts of interest among those involved and dilution of shares allocated to sponsors should all be examined in detail before placing funds in a SPAC.

Conclusion

While the FCA has indicated that it will work with issuers and their advisers in respect of vetting and assessing eligibility for listing, it should be emphasised that it will not hesitate to apply the Market Abuse Regulations and the FCA’s general suspension powers where it sees fit.