FCA unveils plan to reform SPAC rules

UK markets regulator the Financial Conduct Authority (FCA) has unveiled proposed reforms to rules on special purpose acquisitions companies (SPACs) as it looks to help the UK tap into the trend which has taken off in the USA.

SPACs or “blank-cheque” companies are shell companies which are founded and listed on a stock exchange purely for the purpose of raising fund to make acquisitions. SPAC-driven acquisitions have experienced a boom in the USA over the past year or so, with almost 250 listings last year raising the equivalent of more than £60 billion.

In contrast, the UK saw four SPAC listings, which raised just £30 million. This has led to numerous high-profile warnings that, without regulatory changes, the UK could be set to miss out on the lucrative SPAC-boom.

One of the key reasons for the US-UK disparity is that, under current rules, SPACs in the UK are classed as “reverse takeovers”, meaning that when a company is acquired all shares in the SPAC are suspended and trading is paused until a deal prospectus is published.

This can be time-consuming and, due to the fact that investors who may be hoping to sell are locked in, has contributed to the unpopularity of SPACs among investors on the London Stock Exchange (LSE).

However, following recommendations in a government-backed review, the FCA has said that, under new proposals, SPACs will no longer be required to suspend the trading of shares when an acquisition is announced.

The FCA’s proposals, which will be open to a 4-week consultation, include revisions to listing rules and other related guidance designed to strengthen investor protection. The regulator says it is considering features such as redemption options for investors and a minimum market capitalisation in order to achieve greater protection.

Regarding its proposed revisions, the regulator commented: “Where such protections are in place, we consider that the existing presumption of suspension of the listing for such companies at the point of announcement of an acquisition target is no longer required and we, therefore, intend to consult on this basis, aligning this element of our rules more closely with other major jurisdictions.”

While there could still be numerous obstacles to a SPAC-boom in the UK, the proposed changes should go some way to delivering the kind of regulatory changes that could make blank-cheque companies more attractive to UK investors.


Read more about the issues facing SPACs in the UK.

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