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Dual listing risks split-cap repeat

Warning that regulator’s plan could see a new ‘magic circle’ forming.

Leading investment advisers are warning that FSA proposals to relax listing rules could allow another “magic circle” and rerun the split-cap debacle.


The plans mean international trusts would not need an independent board or have to disclose cross-holdings, with the latter measure having been brought in specifically to protect investors after the split-capital debacle.

Bestinvest head of communications Justin Modray says: “This is a concern, as it could open a gateway for another potential magic circle scandal. Disclosure of cross-holdings was brought in specifically to stop a split-cap scenario being repeated and this move could have grave repercussions.”

The Association of Investment Companies has called on the FSA to reconsider the plan. Director general Daniel Godfrey believes the move creates an unacceptable regulatory risk and could lead to consumers getting their “fingers burnt”.

The latest part of the FSA’s consultation includes proposals to allow international companies a choice of the directive minimum, known as Chapter 14, rather than requiring them to be subject to the additional more strenuous requirements set out in Chapter 15 of the listing rules.

Following the splits’ crisis, the Treasury select committee recommended the Treasury amended the Financial Services and Markets Act to bring investment companies under direct FSA product regulation.

In February, a Treasury review of the future of investment trust regulation concluded Chapter 15 provided a robust and flexible mechanism and no change was required. This was backed up by the TSC.

The FSA says the listing regime will be made clearer and the change is to allow greater competition and increased flexibility but Godfrey points out that a competitive regime and investor protection standards are “not mutually exclusive”.

He says: “We understand and share the FSA’s desire to maintain the UK’s competitiveness as a location for listing but we do not believe the creation of a two-tier regime is the right way to go about this. No matter how the FSA goes about trying to distinguish the different regimes in the official list or on its website to the end-consumer, investment companies with a full London Stock Exchange listing will be seen as having a badge of quality, no matter the regime they are subject to.”

Rowan head of research Tim Cockerill says: “This is a retrograde step and leaves the door open for the potential for another crisis along the lines of what we had with split caps. It could threaten investor protection and confidence in a sector that has taken such a battering.”

But FSA director of markets Sally Dewar says: “We have taken account of market developments and our obligation to have regard to the international character of the UK’s markets.”

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