I can’t help but be concerned about the Financial Conduct Authority’s apparently serious consideration of “premium” (read: relaxed) listing standards for state-owned companies. Precisely because of the often cozy relationship between state-owned firms and their home governments, the finances of these kinds of companies tend to be more opaque, and the regulation of corporate disclosures, conflicts of interest, and business conduct weak.

Nonetheless, Reuters reports:

The Financial Conduct Authority’s proposals on Thursday would create a new listing category for companies controlled by sovereign states and come as exchanges vie to win the Aramco initial public offering, which is set to be the largest ever.”

But they met with criticism from British fund managers, who have already expressed concerns about Aramco’s governance. 

 ‘Investors believe a premium listed segment without these investor protections is not a premium segment and will not provide the protections that investors expect,’ Chris Cummings, chief executive at the Investment Association said. 

Reuters reported earlier this year that the London Stock Exchange was working on a new type of structure that would make the bourse more attractive for Aramco.”

Not surprisingly, the decision comes as part of a concern about the UK’s competitiveness as a financial center after Brexit.  To the extent London loses business in Europe, the UK should “go Global” in order to soften the blow.

But I don’t blame fund managers for worrying. Investors in state owned companies are especially vulnerable to legacy corporate governance cultures and weak protections when they put their money into these kinds of institutions, even where issuers become subject to new foreign regulations overseas. If anything, I would expect host state governments to maintain higher vigilance, not less, than would ordinarily be applied to traditional commercial listings.

Moreover, the way that this process is being unveiled strikes me as creating a precedent that redefines and ups the ante on a now decade old competition for global listings. Regulators (at least in the UK) aren’t just willing to accommodate emerging categories of issuers with bespoke safe harbors, but they’re apparently also willing to consider new categories from scratch, just to attract one listing (however big).  It’s hard to see this as a win for Britain, or well regulated markets.

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