FCA publishes final rules to strengthen investor protections in SPACs

The FCA has published final rules and changes to its Listing Rules for certain special purpose acquisition companies (SPACs).

On 30 April 2021, the FCA consulted on proposals to remove the presumption of suspension for SPACs that meet certain criteria which are intended to strengthen the protections for investors, while maintaining the smooth operation of the market. The proposed changes were designed to provide an alternative approach for SPACs that must otherwise provide detailed information about a proposed target to the market to avoid being suspended.

The additional investor safeguards that the FCA will require SPACs to provide in order to benefit from the alternative approach include: 

  • a ‘redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed
  • ensuring money raised from public shareholders is ring-fenced
  • requiring shareholder approval for any proposed acquisition
  • a time limit on a SPAC’s operating period if no acquisition is completed

SPAC issuers unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension.

In response to feedback received, the main changes the FCA has made to its original proposals are to: 

  • Lower the minimum amount a SPAC would need to raise at initial listing from £200 million to £100 million.
  • Introduce an option to extend the proposed 2-year time-limited operating period (or 3-year period if shareholders have approved a 12-month extension) by 6 months, without the need to get shareholder approval. The additional 6 months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced.
  • Modify its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance which disapplies the presumption of suspension.

The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of our markets. Private companies listing in the UK via a SPAC will also still be subject to the full rigour of the FCA’s listing rules and transparency and disclosure obligations.

SPACs continue to have risks and remain a more complex investment, which investors should ensure they can adequately assess and understand before investing. This includes understanding their capital structure, such as the risk of conflicts of interest, dilution from shares allocated to sponsors, and assessing the potential value and return prospects of any proposed acquisition target. Investors, particularly individual investors, should carefully consider all available information and risks before deciding whether to invest in a SPAC, regardless of whether a SPAC has structured itself to comply with our new rules and guidance.

The new rules and guidance come into force on 10 August 2021.