FCA consults on strengthening investor protections in SPACs

The FCA has launched a consultation on proposed changes to its Listing Rules for certain special purpose acquisition companies (SPACs). 

In CP21/10, the FCA proposes amending rules to allow an alternative approach for listed SPACs that are able to demonstrate the higher levels of investor protection that have developed in certain overseas jurisdictions.   

Currently a SPAC listing is typically suspended at the point it identifies an acquisition target. Suspension seeks to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, suspension results in investors being locked into a SPAC at the point a target is announced, potentially for many months prior to completion, which is undesirable for investors and issuers. The FCA are proposing that SPACs that comply with higher levels of investor protection should not be subject to this requirement. 

Clare Cole, Director of Market Oversight at the FCA commented on the proposals: 

‘We are consulting on a set of clear conditions based on which we will not look to suspend the listing of a SPAC. These changes should encourage issuers that are willing to provide transparency and strong protections to investors. This should support market confidence and aligns our approach more closely with standards in other international markets.  

‘We would expect our changes to provide a more flexible regime for larger SPACs, while still ensuring investor protections, potentially resulting in a wider range of large SPACs listed in the UK, increased choice for investors and an alternative route to public markets for private companies.

‘Our position outside the EU allows the FCA to have a new, more nimble approach to domestic policymaking. But in doing so, we are guided by the principles of robust regulation, high standards and strong safeguards.’ 

The disclosure and investor protection features the FCA propose SPACs should include in order to avoid suspension, and on which the consultation seeks feedback, include: 

  • setting a minimum amount of £200m to be raised when a SPAC’s shares are initially listed, to encourage a high level of institutional investor participation 
  • ensuring monies raised from public shareholders are ring-fenced to either fund an acquisition, or be returned to shareholders, less any amounts agreed to be used for the running costs of the SPAC 
  • ensuring shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a confirmation that terms are fair and reasonable if any of the SPAC’s directors have a conflict of interest relating to a target company 
  • a ‘redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed, and a time limit on a SPAC’s operating period if no acquisition is completed 
  • sufficient disclosures being provided to investors on key terms and risks from the SPAC IPO through to the announcement and conclusion of any reverse takeover deal

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

SPACs remain a relatively complex investment vehicle, requiring investors to understand both the capital structure of each SPAC and assess the potential value and return prospects of any acquisition target that is later proposed. Based on evidence from the US market, SPACs have highly varied returns for public investors and can often result in losses, despite a degree of hype around these vehicles.  Therefore, even if the FCA proceed with proposed measures, investors should carefully consider whether investing in a SPAC is appropriate for them based on all the available information. 

The FCA are consulting for 4 weeks on these proposals. 

Notes to editors

  1. The FCA currently estimate there are 33 SPACs listed in the UK. Of these, 40% (13) currently have their listing suspended. Of the estimated 20 SPACs with live listings, 2 have a size exceeding £100m market capitalisation, while two thirds are worth around £5m or less.
  2. The UK Listing Review, Chaired by Lord Hill, made a recommendation to the FCA to consider changes to the Listing Rules in relation to SPACs in its final report published on 3 March 2021. This proposal, alongside wider market feedback and evidence from the US market, has further informed the FCA’s consideration of the issues and consultation proposals.  
  3. Read CP21/10
  4. Find out more information about the FCA.