London’s IPO share has fallen to its lowest point in decades and Fintech CEOs are not happy: ‘Companies have just moved their business elsewhere’

The chief executives of some of the biggest private financial technology companies are pushing for bolder reforms to the UK’s listing rules, saying the overhaul announced this week is not enough to revive share offerings in London.

Increased research incentives, better policies to attract global talent, and a favorable tax regime that supports employee stock options are among the measures that could help “solidify London’s status as a world-class listing hub,” said Paul Taylor, CEO of banking software firm Thought Machine. Others such as Jaidev Janardana, CEO of SoftBank-backed Zopa Bank, have called for a broader range of investors.

Their comments came in response to new rules for initial public offerings revealed From United Kingdom Financial Conduct Authority on July 11 as part of a concerted effort to revive an equity capital market that has been moribund for years.

The UK’s share of new deals in Europe fell to 2% in May, its lowest level in decades, amid a global deal drought, although London remains the continent’s main IPO venue. A recovery It could take monthsas investors await clarity on the policies of the new Labour government led by Prime Minister Keir Starmer.

The FCA’s revised rules will allow companies to conduct more activities without submitting them to a vote of shareholders. They also make it easier for companies to have two classes of shares, a structure often favored by entrepreneurs or early-stage investors who want to have a significant stake in companies even after they go public.

“Less expensive”

Some of the fintechs and startups planning to go public are looking for more flexible rules and a more favorable environment sooner or later.

Rishi Khosla, CEO of OakNorth Bank, a lender for small and medium-sized businesses, said policymakers needed to look at the factors driving higher “price multiple” premiums in the US and adapt them to the UK.

“They could also look at how to make the first two years less onerous for new IPOs, so companies can adjust to life as a listed company,” Khosla said.

Meanwhile, Zopa’s Janardana, whose preferred option is to list in the UK, has called for greater participation from large institutional investors such as pension funds and sovereign wealth funds to improve “depth of capital”.

The FCA has proposed rewriting listing rules in May 2023 amid heated debate over London’s future, sparked by Cambridge-based technology firm Arm Holdings Plc’s decision to list in the United States. London has largely lost ground to New York in recent months as the preferred listing choice for Swedish buy-now-pay-later firm Klarna Bank AB.

The co-founders of Revolut Ltd., a fintech eyeing a valuation of more than $40 billion, launched a scathing attack on the U.K.’s regulatory regime in 2023, saying they would not consider listing in London. A year later, the company appears to have softened its stance. Its U.K. CEO Francesca Carlesi suggested in March that London remains on their radar for an IPO, though she cautioned that Paris and New York were competing to host promising financial startups.

“We do not believe that business as usual is an option,” the FCA said in a policy statement. The new rules were a first step towards “reinvigorating” the UK’s capital markets, Chancellor of the Exchequer Rachel Reeves said.

Weakening of protections

Some were disappointed by the changes for a different reason. Railpen, which manages about £34 billion ($44 billion) of assets for the 350,000 members of rail pension pools, said the FCA’s move had undermined investor protections.

Others said regulators needed to stay bold. The government “in general should work to make the market more competitive” on issues such as stamp duty, executive pay and more pension funds investing in UK stocks, said Claire Keast-Butler, a partner at law firm Cooley, which specialises in capital markets transactions.

But the UK market faces a tough challenge in trying to turn the tide. The number of companies listed in the country has fallen by around 40% since its recent peak in 2008, according to the UK Listing Review. Data shows that the UK accounted for just 5% of global IPOs between 2015 and 2020.

David JarvisCEO and founder of a London-based fintech company offering banking as a service Griffinsaid the FCA’s move was “extremely encouraging”, adding that he expected it to bring “some dynamism” back to London markets.

“The status quo hasn’t led to anything: companies have simply moved their business elsewhere,” he said. “Companies prefer to list in their home markets.”

The UK should scrap stamp duty on shares traded on the main market, bringing it into line with the US, said Philip Belamant, CEO and co-founder of Zilch Technology. Serial entrepreneurs should be encouraged by increasing the so-called Incentives for the transfer of company assets on the proceeds from the IPO being reinvested in their next UK venture, he said.

In recent years, the fintech sector, which accounts for half of all UK unicorn companies, has seen reduced investment and increased global competition.

Janine Hirt, CEO of Innovate Finance, called on Starmer’s government to commit to delivering the Mansion House Reforms aimed at encouraging pension funds to increase investment in local assets “to increase access to growth capital”.

“The UK has a window of opportunity to move forward that it cannot afford to miss,” he said.

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