UK FCA to strengthen regulation in SPACs

Rick Steves

The regulator is considering structural features and enhanced disclosure, including a minimum market capitalization and a redemption option for investors.

The Financial Conduct Authority, UK’s financial watchdog, has confirmed it will be consulting shortly on amendments to rules and regulation pertaining to Special Purpose Acquisition Companies (SPACs).

The Listing Rules and related guidance will be revised to strengthen protections for investors, according to the FCA.

The regulator is considering the structural features and enhanced disclosure, including a minimum market capitalization and a redemption option for investors, required to provide appropriate investor protection.

FCA’s proposals aims to ensure that SPACs operate within a framework of high regulatory standards and oversight, the regulator stated.

“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”, said the announcement.

The FCA will have the consultation open for a 4-week period. Feedback from the full range of stakeholders will be taken into consideration as the regulator designs the new rules and/or guidance by early summer.

SPACs have become the new trend in buyouts. UK’s chancellor, Rishi Sunak, has recently jumped on the bandwagon and commissioned a review of the London Stock Exchange rules. The government review led by former EU commissioner Jonathan Hill has made the loosening of restrictions on SPACs a priority.

The review suggested removing a requirement for trading in SPAC shares to be suspended during a takeover so investors have time to scrutinize the deal.

The United States is way ahead in the race for SPACs. Most recently, eToro has announced it is going public via SPAC after reaching a deal with FinTech V with an estimated implied equity value of approximately $10.4 billion.

The deal will retain 91% ownership for existing equity holders and the combined company will operate as eToro Group Ltd. and is expected to be listed on NASDAQ.

The SPAC craze has already led the SEC to issue a warning to investors amid the growing trend of celebrity endorsements of special purpose acquisition companies.

“SPAC sponsors generally acquire equity in the SPAC at more favorable terms than investors in the IPO or subsequent investors on the open market. As a result, the sponsors will benefit more than investors from the SPAC’s completion of a business combination and may have an incentive to complete a transaction on terms that may be less favorable to you”, said the SEC statement.

 

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