When a sponsor must be appointed
Premium Listed companies or companies seeking a Premium Listing need to appoint a sponsor or seek a sponsor’s guidance in a number of circumstances which are set out in LR 8.2R.
These include when a company is applying for a Premium Listing and in relation to certain significant transactions once the company is listed.
The sponsor’s role
Sponsors are experts on our listing regime. They advise, guide and educate their client companies on their obligations under the Listing Rules (LRs), Prospectus Rules, Disclosure Requirements and Transparency Rules (DTRs) and the Market Abuse Regime (together, the Listing Obligations). They also challenge their clients and verify statements.
Sponsors also owe responsibilities to us. In relation to some sponsor services such as an IPO or a significant transaction, a sponsor provides an assurance to us on the terms set out in the relevant part of LR 8.4R, that the responsibilities of the company have been met.
The principles for sponsors
The principles for sponsors are set out in LR 8.3R and set standards that sponsors must meet whenever they perform a sponsor service including:
- acting with due care and skill
- taking reasonable steps to satisfy itself that the directors of the Premium Listed company understand their responsibilities and obligations under the Listing Obligations
- notifying us if it becomes aware that a company is failing or has failed to comply with its Listing Obligations
- acting with honesty and integrity
- taking all reasonable steps to identify and manage conflicts of interest that could adversely affect its ability to perform its functions properly under LR 8.3
In addition, a sponsor must at all times (whether in relation to a sponsor service or otherwise) deal with us in an open and co-operative way. We have issued guidance on this fundamental important principle in Technical Note 713.1.
Sponsor’s assurances to the FCA
Depending on the nature of the transaction in question, a sponsor will provide us with the following assurances:
- confirm that the company meets the eligibility criteria
- ensure that the directors of the company understand their responsibilities and obligations under the Listing Obligations
- confirm that the company satisfies the requirements of the relevant Listing Obligations
- confirm that a significant transaction will not have an adverse impact on the company’s ability to comply with the Listing Obligations
- confirm that the directors of the company have established procedures to enable the company to comply with relevant Listing Obligations on an ongoing basis
- confirm that the directors of the company have established procedures which provide a reasonable basis for them to make proper judgements on an ongoing basis as to the financial position and prospects of the company and its group
- confirm that the directors of the company have a reasonable basis on which to make any working capital statement required by the rules
- notify us if, in connection with the provision of a sponsor service, a sponsor becomes aware that it, or a company has failed to comply with the Listing Obligations
Alongside these assurances, a sponsor is also required to (amongst other things):
- provide expert guidance to companies seeking or which have an existing premium listing on the Listing Obligations and our processes
- communicate with us, as an expert, on the company’s behalf when reviewing a prospectus or circular
- ensure that all matters known to it which, in its reasonable opinion, should be taken into account by us in considering the relevant transaction are included in the relevant document or notified to us to ensure full disclosure is made. For a company seeking a Premium listing, this would include matters such as whether the admission of the shares would be detrimental to investors’ interests
For example, in relation to working capital, we would expect the sponsor, applying its own knowledge and experience of the issuer and its operating environment, to reach its conclusion after reviewing and challenging the work done by the issuer and reporting accountant.
What a sponsor is not responsible for
A sponsor is not responsible for the pricing, marketing, distributing or allocation of the securities in an IPO or further equity offering requiring a prospectus (e.g. rights issue or placing).
However, because a sponsor will often have multiple roles on a transaction (for instance, financial adviser, bookrunner, underwriter, corporate broker or lender) it is possible that the same firm may be involved in these activities.
Where sponsors are also FCA authorised firms, they are subject to other FCA requirements and oversight regarding other regulated activities.
What protections the sponsor regime does not offer
There are some protections which the sponsor regime does not offer:
- the sponsor role is not a retained role as a sponsor is required only in certain circumstances (typically in relation to a transaction)
- although the sponsor provides us with an assurance that the directors understand their responsibilities and obligations under the Listing Obligations, the sponsor is not accountable for the ongoing actions of the directors or the issuer’s management
- Although the sponsor provides us with an assurance that the directors have established procedures which enable the company to comply with the Listing Obligations on an ongoing basis, this assurance is given to us at a point in time and the sponsor cannot guarantee the procedures will be operated effectively by the company going forward
Where a company applies for listing for the first time, the company’s sponsor confirms to us in writing that the company satisfies the relevant eligibility criteria. We will also perform an eligibility review.
The eligibility process is limited to eligibility under the Listing Rules and does not assess the suitability (or not) of a particular issuer. However, for reputational reasons, sponsors will consider carefully which prospective listings or corporate transactions they wish to be associated with.
Although sponsors do not do not formally ‘endorse’ the suitability of investing in the particular company’s securities, the sponsor helps to ensure appropriate disclosure for investors. A sponsor must disclose to us and/or investors in the prospectus (or equivalent document) matters that could be detrimental to investors.
The disclosure based regime that we operate means that it is up to each investor to decide, based upon the disclosure, whether or not they should invest in the company.