UK financial watchdog defends listing plans ahead of Aramco IPO

By Anjuli Davies, Huw Jones and Andrew MacAskill

LONDON (Reuters) - Britain's financial watchdog on Monday defended plans to relax rules on listing state companies which corporate governance groups say could leave investors with less protection.

The FCA in July proposed a new listing category for companies controlled by sovereign states in a move seen as helping London win the initial public offering of oil giant Saudi Aramco, which is likely to be the largest ever IPO.

"We want to see London markets develop, we want to see them innovate, but we want to see it happen in a sense transparently and safely, and the reason we put the proposal forward as we did is that we think that does achieve it," Financial Conduct Authority Chief Executive Andrew Bailey said.

The plans have attracted the attention of the British parliament's Treasury Select Committee and Energy and Industrial Strategy Committee, which are chaired by Nicky Morgan and Rachel Reeves respectively.

They wrote an open letter to Bailey in September asking if the change could weaken “protection for private investors against interference from foreign sovereign company owners”.

"I will reply to the letter Nicky Morgan and Rachel Reeves sent to me," Bailey told the Reuters Financial Regulation Summit in London.

"There are strongly held views on both sides of this."

The FCA’s proposals were applauded by Britain’s financial lobby groups as helping to ensure the country’s capital markets remain attractive once it leaves the European Union.

But they got a cold reception from investors and corporate governance groups, who say a proposed new listing category could lower the quality of companies on the London stock market, and leave shareholders exposed when things go wrong.

"Some of the commentary from some of the people has suggested that the premium listing category is monolithic and therefore we’re compromising the whole premium listing category which we’re not, because it’s actually a series of categories under the premium listing."

"The premium listing category is what would be called in another language "gold plating" because basically the standard listing category is the minimum EU requirements, premium listing is a level above that in terms of requirements."

Morgan and Reeves also asked the regulator to explain if Aramco’s interest in listing in London influenced the consultation and whether companies controlled by sovereign entities engaged in it.

Aramco has yet to decide where it will list, although London and New York have been touted as frontrunners for the bulk of the public flotation.

Bailey said he was not aware when Saudi Aramco would make a decision on where it would list and the regulator was "not working to any timetable".

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"This is a proposal for all time not Saudi Aramco, but it’s a transparent process so they can observe what's going on as well as anybody else can."