The regulator's willingness to revisit its own framework signals a maturing approach to capital markets reform, but the real test lies in the detail.

When the Financial Conduct Authority introduced its sweeping overhaul of the UK Listing Rules in 2024, it was broadly welcomed as a long-overdue modernisation of a regime widely criticised for driving companies away from London's public markets. The Primary Markets Effectiveness Review was ambitious in scope and well-intentioned in purpose. Yet, as is so often the case with large-scale regulatory reform, the devil revealed itself in the detail, and it is now doing so with particular force for investment entities.

The FCA's announcement that it is bringing forward a review of how the UK Listing Rules apply to specific types of investment entities is, on its face, a sensible and pragmatic response to stakeholder feedback. The regulator has acknowledged that eligibility criteria, particularly those relating to risk-spreading, may be "unduly restrictive." That is a significant concession from a body that only recently finalised those very rules, and it deserves to be taken seriously, both as a signal of the FCA's responsiveness and as an indicator of just how consequential the original drafting decisions were.

The Problem With Risk-Spreading Requirements

The risk-spreading eligibility criteria were, in principle, a reasonable safeguard. Investment vehicles seeking admission to a public market carry obligations to retail and institutional investors alike, and some minimum standard of diversification is a legitimate tool for protecting those investors from concentrated, opaque risk. No one serious is arguing for the elimination of investor protection.

The problem, as stakeholders appear to have made clear to the FCA since the new rules came into force, is one of calibration. Criteria that are too broadly drawn, or that fail to account for the structural diversity of investment entities, will inevitably catch vehicles that pose no meaningful systemic or investor protection concern. Certain types of investment entities, particularly those with specialist mandates, long-duration strategies, or sector-specific focuses, may find themselves effectively excluded from London's listed markets not because they are dangerous to investors, but because they do not conform to a one-size-fits-all conception of what a listed investment vehicle should look like.

That is a meaningful competitive disadvantage for the UK. When an investment entity that would be welcomed on an Amsterdam or New York exchange finds the door to London effectively closed by inflexible eligibility rules, we are not protecting investors, we are simply redirecting capital elsewhere.

Shareholder Rights and Conflicts of Interest

The parallel strand of this review, examining how the rules, in the context of company law, ensure that boards support strong shareholder rights and engagement and manage conflicts of interest, is equally important, though it raises different questions.

The investment entity space has, historically, been an area where conflicts of interest can arise in structurally distinctive ways. The relationship between a listed investment vehicle and its external manager, for instance, presents governance challenges that differ materially from those facing a conventional operating company. Fee structures, related-party transactions, and the allocation of investment opportunities all require careful board oversight and genuine independence.

The concern here is whether the existing framework, the product of company law on one hand and listing rules on the other, is sufficiently coherent and joined-up to address these issues effectively. Two separate legal regimes operating in parallel do not always produce clear, consistent outcomes. If the FCA's targeted work in this area can identify gaps or conflicts between the two frameworks and propose sensible rationalisation, that would be a genuinely valuable contribution.

The Broader Stakes

It would be a mistake to view this review in isolation. It sits within a wider story about London's competitiveness as a listing venue, a story that has not, in recent years, made for comfortable reading. The number of companies delisting from, or declining to list in, London in favour of New York in particular has prompted serious soul-searching in government, regulatory, and market circles alike. The Edinburgh and Mansion House reforms, the PISCES initiative, and the listing rules overhaul itself have all been, to varying degrees, attempts to arrest that trend.

Against that backdrop, the speed with which the FCA is revisiting aspects of the new listing rules is notable. It has not yet been two years since the regime was reformed, and already a review is necessary. That is not necessarily a criticism, regulatory agility is a virtue, and the willingness to acknowledge when rules are not working as intended is a sign of institutional maturity. But it does raise questions about whether the original consultation process was sufficiently deep, and whether the investment entity sector in particular received the focused attention its structural complexity warranted.

What Success Would Look Like

The FCA has committed to setting out proposals in a consultation paper and completing the work by the end of 2026. That timetable is reasonable, provided the consultation is substantive rather than performative.

Success, in this context, would mean eligibility criteria that are genuinely calibrated to the risk profile and structural characteristics of different types of investment entities, not a single threshold applied indiscriminately. It would mean a governance framework for boards of listed investment entities that is clear, coherent, and effective at managing conflicts without being so prescriptive as to deter well-run vehicles from choosing London.

And it would mean that the FCA emerges from this process having demonstrated that it can listen, adapt, and deliver, qualities that matter enormously to the international investment community that London must continue to attract.

The review is welcome. Now let us see what it produces.