Regulators warn FCA that 'highly inappropriate' proposal could damage London's reputation

A relaxation of certain stock market rules and regulations for sovereign-owned companies could damage London's reputation for strict enforcement of the best practices in corporate governance.

The Financial Conduct Authority (FCA) announced in June that it planned to institute rules that were widely seen as an attempt to lure in the Saudi Arabian state owned oil company, Saudi Aramco.

With a predicted stockmarket valuation of approximately £1.5trn, stock exchanges the world over have been vying for the company, which has yet to decide which venue would best be suited to the sale ad listing of 5% of its shares.

The London Stock Exchange forbids sovereign-owned companies from being listed, but the proposal made by the FCA would change this, by creating a sub-category that with fewer regulations on how a company operates.

Some of the regulations the FCA proposed to waive included the need to provide independent shareholders the right to a separate vote on the appointment of independent directors, which could delay the appointment process as much as 90 days.

The Institute of Directors (IoD) has said that the FCA should not waive the current rules for such companies, but should actually strengthen them further.

Director General of the IoD, Stephen Martin said, "The IoD is strongly committed to sustaining the City of London as a global financial centre as we embark on leaving the European Union. Attracting leading firms from around the world to list on the London Stock Exchange will be increasingly important, and this could include sovereign-owned companies.

"Good corporate governance serves to enhance business performance, protect investors and maintain the reputation of UK plc and we do not believe the proposals in the consultation paper seek to strengthen these objectives," Martin said.

Pension fund Royal London Asset Management also condemned the proposals, saying that if it were to weaken protections, the listing should not go ahead.

TheCityUK has applauded the FCA for taking an "open-minded" approach to regulation, but Martin and the IoD insisted that existing rules had been "formulated without regard to available evidence concerning state-owned or state-controlled enterprises" and would be seen as an "opportunistic attempt at boosting short-term primary issuance."

The Investment Association has already rejected the proposals for failing to protect minority shareholders.