The FCA has been accused of watering down corporate governance rules to win Saudi Aramco’s IPO for the LSE
UK plans to change its stock market listing rules as it attempts to win the world’s largest share sale, by Saudi Aramco, will be scrutinised by two separate parliamentary committees for political interference.
The Financial Conduct Authority has faced criticism from investors who accused it of proposing to water down corporate governance rules to gain the initial public offering of 5 per cent of Saudi Arabia’s national oil company. Now, the new heads of both the Treasury select committee and the Business, Energy and Industrial Strategy Committee have demanded to know what discussions the FCA had with ministers before it proposed the reforms.
The FCA said in July that it was planning to create a new category within its “premium” listing that would exempt companies controlled by governments from some rules.
The announcement came after prime minister, Theresa May, and the head of the London Stock Exchange, Xavier Rolet, travelled to Saudi Arabia to press for London as the venue for Saudi Aramco’s planned IPO next year.
London and New York are among the cities around the world vying for the listing of the world’s biggest oil company, which will bring a fee bonanza for advisers.
The listing could value Aramco at about $1tn, according to a Financial Times analysis, although Saudi officials believe it to be worth much more. The listing is being spearheaded by Saudi Arabia’s crown prince, Mohammed bin Salman, and is part of an overhaul of the country’s economy.
Meanwhile, the FCA’s proposals are part of plans to reform equity and debt markets, with the aim of keeping the UK competitive after Brexit.
In a letter to the head of the FCA, Nicky Morgan and Rachel Reeves, who chair the respective select committees, said they wanted to get to the bottom of the regulator’s decision to overhaul the rules.
The letter, dated September 5, asks whether Saudi Aramco’s interest in floating influenced the FCA’s decision. It also questions whether Treasury recommendations pushed out earlier this year had an influence “in setting the tone” for the plans.
The Treasury told the FCA in March that with Brexit looming, the regulator should have the competitiveness of UK financial markets in mind when it formulates policy. Both the FCA and the Bank of England have previously resisted this, an objective of the much criticised former watchdog, the Financial Services Authority.
“The UK has a world-class reputation for upholding strong corporate governance. The FCA must protect this reputation, especially as the City looks to remain competitive and thrive post-Brexit,” said Mrs Morgan.
Andrew Bailey, the FCA’s boss, denied in an FT interview in July that the FCA had come under pressure over the listing.
The FCA said it had received the letter and would respond in due course. Saudi Aramco declined to comment. The London Stock Exchange Group said: “We welcome this conversation about how we enable UK markets to function well and in an orderly and internationally competitive manner.”
Meanwhile, the world is still waiting to hear Saudi Aramco’s final decision.
While Prince Mohammed has favoured New York because of its large pool of investors, prestige, and for any political benefits with Donald Trump as president, senior executives at Aramco, lawyers and other advisers have said the US poses the greatest litigation risk of any venue, putting the focus on London, three people familiar with the matter have said.
The final decision rests with Prince Mohammed, who is ultimately in charge of the country’s oil sector. He was expected to make a final decision on an exchange in June, according to an internal timetable. “There is a lot riding on this, so it’s no surprise Riyadh is taking its time,” said one person close to the company.
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