Amendments to sponsor competency rules under LR 8

The FCA has published FCA Handbook Notice 118 to confirm rule changes on sponsor competence under the Listing Rules.

Chapter 8 of the current Listing Rules sets out rules for sponsors, including the criteria for approval of a sponsor and the sponsor competence requirements. To be competent to provide sponsor services, a firm must have submitted a relevant sponsor declaration to the FCA in the past three years and have a sufficient number of employees with relevant skills, knowledge and expertise.

The FCA consulted on changes to the sponsor competence requirements as part of its proposals for reform of the UK listing regime in CP23/31. The changes are intended to widen the criteria for demonstrating sponsor competence in recognition of fluctuating levels of market activity and the need to adapt to the new UKLR proposed by the FCA. For more information on the reform of the listing regime, see item 2 above.

The sponsor competency requirements have now been modified to:

• extend the period during which a sponsor is required to have submitted a sponsor declaration to the FCA from within the previous three years to within the previous five years; and
• introduce more flexibility by allowing sponsors that cannot satisfy the five-year requirement to demonstrate their competence instead through experience gained from providing certain corporate finance advisory services.

The FCA will take employee experience into account when considering whether an applicant has provided sufficient relevant corporate finance advisory services.

These amendments came into force on 26 April 2024.

As discussed in item 2 above, the FCA has also published Primary Market Bulletin 48, in which it confirmed changes to the following technical notes to reflect these changes to the sponsor competency rules: Sponsor transactions – Adequacy of resourcing (FCA/TN/709.3); Sponsors guidance on the competence requirements set out under LR 8.6.7R(2)(b) (FCA/TN/714.4); and Sponsors practical implications of competence requirements for sponsors and applicants (FCA/TN/715.2).

The new guidance expands on what relevant corporate finance experience includes in the context of demonstrating sponsor competence, listing the following as examples:

• acting as an IPO adviser in a role other than a sponsor, for example as a financial adviser or an AIM nominated adviser;

• acting as a sponsor on services not requiring a declaration, for example, the provision of fair and reasonable opinions on related party transactions; and

• acting as an adviser in the context of mergers and acquisitions, including acting as an adviser for the purposes of the Takeover Code.

The FCA also says it has listened to concerns that have been raised around the current sponsor regime. Market participants have said the regime leads to disproportionate systems and controls, and burdensome record-keeping that creates additional costs. The FCA is therefore considering further amendments to its rules and guidance for sponsors as necessary.