Primary Market Bulletin 50

Newsletters Published: 11/07/2024 Last updated: 11/07/2024

Newsletter for primary market participants

July 2024 / No. 50.

About this edition

Welcome to the 50th edition of the Primary Market Bulletin (PMB). We are delighted to publish this edition alongside our Policy Statement PS24/6, which sets out widespread and important changes in the UK listing regime. This follows our series of consultations relating to the Primary Market Effectiveness Review. This edition focuses on the sponsor regime and sets out in further detail how we have responded to feedback received in the course of those consultations.

What's new

In PMB 48, we explained that we were carefully considering the feedback we received on the sponsor regime. We also reflected that we had already begun work to address some of the more significant issues raised with us.

In this edition, we: 

  • Provide an update on the work we have been doing in relation to the sponsor regime.
  • Consult on the introduction of new technical notes relating to supervisory reviews of sponsor firms and the FCA’s expectations of a sponsor in relation to specialist due diligence.
  • Consult on an update to our existing technical note on sponsor record keeping.

Consultation feedback and further engagement

Our Primary Market Effectiveness Review included a fundamental review of the sponsor regime. In CP21/21 we started by asking whether the regime should be kept at all. In DP22/2 we explained that feedback supported the retention of the sponsor regime, broadly in its existing form. We also clarified the role and purpose of the regime, emphasising the value the FCA places on sponsors in assisting it in exercising its own functions. 

However, we also acknowledged that some feedback suggested that aspects of the regime were inefficient and problematic for sponsors. We explored and discussed those issues further in CP23/10 and CP23/31

In particular, CP23/31 explained that our further engagement with sponsor firms revealed that they had concerns in the following areas:  

  • The sponsor’s role in coordinating a due diligence package, in particular the level of expertise expected of sponsors in specialist areas and expectations when relying on a third party. 
  • A mismatch between our expectations regarding record keeping and market practice in this area. 
  • The extent to which the sponsor role is fully understood by companies seeking to IPO. 
  • The potential for there to be misunderstanding within firms over the intention of our supervisory approach and follow up communications. 
  • The nature and extent of the due diligence expected on a transfer of ex-standard listed issuers to the commercial companies category. 

We further explained that we would consider providing guidance in relation to some aspects of this feedback.

We have continued to engage with sponsors in relation to these issues, holding focus groups and corresponding with sponsors in the ordinary course of our supervisory work. This has helped us gain a better understanding of the challenges that sponsors face and also to test some of our proposed ideas to support sponsors, including new and updated guidance.  

Our discussions with sponsors revealed a spectrum of views. Some sponsors would like us to be more prescriptive and detailed in our expectations of the work required of them and the records to be kept in certain scenarios. Other sponsors were clear that they are sophisticated professionals, accustomed to making complex decisions and exercising common sense when recording their work. However, all sponsors we spoke to have a preference for more practical guidance and feedback to ensure they are empowered to make judgements that result in their work being efficient and proportionate. Our responses to the sponsor feedback start with the premise that the sponsor role is one requiring an ability to exercise judgement, both in relation to the nature and scope of work required and the way it is recorded.  

Our response

Aside changes to our sponsor competence requirements, published in Handbook Notice 118, we have not materially changed the requirements relating to the nature of the sponsor role or our expectations when a firm performs sponsor services. However, we have carefully considered how we can support sponsors in response to their feedback and now propose a package of initial measures designed to address the points raised with us through the consultations and our ongoing engagement. Wherever possible, we have tried to incorporate practical considerations and examples.

Importantly, these measures sit against a backdrop involving a wider set of changes in our listing rules that will have the effect of removing a number of sponsor services completely or simplifying some of the considerations sponsors make when performing sponsor services. For example, the requirement for a commercial company to submit a significant transaction circular for the FCA’s approval, and the accompanying sponsor service, which included a declaration in relation to working capital, have been removed.  

Specialist due diligence

In response to concerns relating to the sponsor’s role in coordinating due diligence in specialist areas, we have produced a technical note providing guidance on what we regard as our reasonable expectations. We explain that we expect a sponsor to apply the listing rules, prospectus rules and disclosure requirements and transparency rules with skill and expertise in the specific context of an issuer’s business and operations.

However, we acknowledge that we do not expect sponsors to be experts in every specialist discipline. Further, that we expect sponsors to exercise common sense judgement as corporate finance professionals when determining the due diligence proportionate to undertaking the sponsor role with due care and skill and providing opinions after due and careful enquiry.

We emphasise that it is within the judgement of a sponsor to determine when specialist reporting by a third party is appropriate and clarify that the FCA does not expect to see third party reports where a sponsor is able to reach its opinion without such a report.

We also discuss some practical considerations sponsors can consider and records that we expect sponsors to keep when placing reliance on third party reporting.  

Record keeping

Record keeping was an area in which we received a significant body of feedback, both through our consultations and our further engagement. Although the views of firms varied, this is an area where sponsors have asked for better practical guidance, to help them avoid unnecessary cost and friction during transactions.  Whilst we wish to support sponsors in this aim, we are also clear that in order to be able to supervise the sponsor regime appropriately, we must be able to perform sponsor reviews.  Further, by reference to sponsor records, we will need to be able to gain a relatively detailed understanding of the work a sponsor performs, particularly when providing confirmations and declarations to the FCA. 

In response to sponsor concerns in this area, we have updated our existing record keeping technical note TN717 to include an appendix containing a question-and-answer section. Consistent with our overall response to sponsor concerns, we are clear that record keeping remains an area for sponsor judgement and it is not possible to specify the precise records that will be reasonable in all cases. However, this new section of our record keeping guidance includes a selection of questions that we commonly receive from sponsors, or that we understand from our engagement with sponsors, that they regularly have to confront.  In each case, we have attempted to provide a sense of our reasonable expectations, practical considerations or examples that a sponsor can consider when exercising its judgement. We have designed the note in this way as we anticipate supplementing it with further questions and answers, drawing on real life examples, as we complete further sponsor reviews or discuss good and bad practices around record keeping with sponsors. 

As set out in PS24/6, we have also amended our Handbook guidance in UKLR24.4.27G. This guidance, formerly in LR8.6.16CG, described matters we take into account when considering the sufficiency of sponsor records. Whereas previously, we considered that records should allow a person with no specific knowledge of the actual sponsor service undertaken (to which records relate) to understand and verify the basis upon which material judgements have been made throughout the provision of the sponsor service, we now refer to a person with a basic understanding of the transaction being sufficient. We hope this has the effect of limiting the records required to be kept by a sponsor. For instance, a sponsor need not retain records relating to matters of public record.

Issuer understanding of the sponsor’s role and obligations

Feedback from sponsors and issuers has suggested that the role of the sponsor is not always well understood by issuers, and that there is the potential for additional cost and friction to arise where a sponsor requires additional reporting or documentation as part of its due diligence. We expect that our responses to the sponsor feedback as a whole will assist sponsors in ensuring that their approaches to completing their due diligence are proportionate and in turn, less problematic for issuers.


However, it is important that issuers also understand that the sponsor has important responsibilities to the FCA. Our rules already impose obligations on issuers to cooperate with their sponsor but, we intend to make this clearer at the outset of an IPO, by writing to the Board of an issuer to explain our expectations as regards their interactions with their sponsor. Importantly, we expect to clarify that the sponsor is assisting the FCA in carrying out its functions and that sponsors are closely supervised. We wish to make clear that a sponsor must be able to demonstrate, through its own records, that it has exercised due care and skill and provided opinions after due and careful enquiry. We hope that this supports sponsors in performing their role and makes clear to issuers the distinction between the sponsor and the other advisers on a transaction.

FCA supervisory reviews of sponsor services

We were particularly concerned to hear that some sponsors felt that our approach to supervisory reviews had led to a disproportionate ratcheting up of the work required of sponsors. Some firms felt this had led to the implementation of overly burdensome controls, particularly in the area of record keeping.

From our engagement with sponsors, we have understood this to result from a combination of factors, including a concern that the FCA may take formal action against a firm where it has not been able to provide a specific evidential record, including in circumstances where subsequent events may have altered the relative importance of the record in question. For example, where an email record that was deleted (or not retained) in the early stages of a transaction becomes highly relevant, due to subsequent events, when reviewing the sponsor’s approach after the closing of the transaction. We are aware of related concerns regarding the individual responsibility felt by sponsor staff members when signing a sponsor declaration, something we acknowledged in CP23/31.  

After discussing this with sponsors, we are of the view that this particular area of the sponsors’ feedback can be addressed in a range of ways. As well as updating our record keeping technical note (see above), we have also produced a new technical note explaining our approach to our supervisory reviews of sponsors. This new guidance explains why and how we perform reviews. Importantly, it also sets out how we approach providing feedback and what we expect in response. We hope that this will encourage sponsors to communicate with us where they believe our feedback is inaccurate or unfair and also to make proportionate responses to our feedback, including where changes to procedures or controls are involved.  

We have also made amendments to our sponsor declarations to make clear that the declaration is provided by the sponsor firm and not an individual. We will continue to carefully review the approach we take to our feedback letters, to ensure the tone and content is fair and proportionate.

We expect that our ongoing and routine engagement with sponsors will provide appropriate opportunities to continue discussing these issues and ensuring that our expectations of sponsors are clear. We hope this will also support sponsors in achieving proportionate responses to our review feedback. 

Modified transfers

Finally, in response to curiosity from sponsors in relation to the form of the declaration proposed for a modified transfer of listing, we published a draft technical note TN721.1 in Primary Market Bulletin 48. In doing so, we aimed to address the curiosity expressed by some sponsors in the potential nature and extent of the work that might be required to support a sponsor declaration where the transitional provisions in TP2, TP3 and TP5 apply.

Ongoing engagement

We routinely aim to meet with the most active sponsors at least twice annually and meet with other firms periodically. In view of the significant changes to the UK listing regime, and to ensure we can continue to maintain a dialogue with sponsors in relation to those changes and the matters raised in their feedback, we anticipate meeting with all sponsors in the coming months. We are also considering whether to continue roundtable style events and will discuss this with sponsors when we meet them.

Proposed changes to our guidance

We are consulting on the following proposed changes to the Knowledge Base:

  • The amendment of one existing technical note.
  • The addition of two new technical notes. 

UKLA/TN/717.1 Sponsors: Record Keeping Requirements (amendment)
We propose to amend this note to include a practical Q&A section in an appendix.  
FCA/TN/723.1 FCA reviews of sponsor services (new)
We have proposed introducing this new technical note to help explain how and why we perform reviews of sponsor services and to clarify how we provide feedback and what we expect in response.
FCA/TN/722.1 Responsibilities of a sponsor: specialist due diligence (new)
We have proposed introducing this new technical note to clarify our reasonable expectations of sponsors in relation to the work they undertake to support their assurances and confirmations to us, particularly in areas of technical specialism.

We want to hear what you think

Please send your comments on our latest proposals by 5 September 2024 to [email protected].