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British Politicians Press Regulator for Answers on Saudi Aramco

Andrew Bailey, head of the U.K.’s Financial Conduct Authority, is facing questions from two parliamentary committee leaders over his decision to consult about a new listing category that critics say will relax governance standards.

  • Joe McGrath

The leaders of two U.K. parliamentary committees have written to the Financial Conduct Authority to ask if it has been pressured to write new rules to accommodate a stock market listing for Saudi Aramco.

The move comes after the U.K.’s market regulator published a consultation paper in July focused on making the listing regime “work better for companies controlled by a shareholder that is a sovereign country” and proposing to change the current rules to accommodate a new category where reporting standards may not be as stringent as with the existing categories. Institutional investors and business leaders have decried such proposals, which they say could hamper corporate governance standards.

A U.K. listing of Saudi Aramco would be a coup for the London Stock Exchange, as it would inflate trading volumes overnight and could set the path for other listings from sovereign-owned entities from the Middle East. Hong Kong and New York also have been reported by media outlets as potential exchanges where Aramco could list.

[II Deep Dive: Inside the Fight Over Saudi Aramco]

Despite the competition, Nicky Morgan, chair of the parliamentary Treasury Select Committee, and Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee, expressed concerns in a letter to Andrew Bailey, chief executive of the FCA, according to a joint media release.

Mrs. Reeves said in the release that the consultation raised questions about the U.K.’s reputation for sound corporate governance, adding that while it is important for the U.K. to identify new business opportunities when it leaves the European Union, it should not be “at the expense of diminished corporate governance standards,” adding, “Getting this balance right will be vital to the U.K.’s long-term future as a key financial centre and an attractive market-place place for investors.”

The legislators pressed Bailey for answers on several questions, including whether the FCA knew Saudi Aramco was interested in obtaining a listing and if so, “how far that interest influenced the consultation.”

Nicky Morgan, chair of the Treasury Select Committee, said that the issues raised in the FCA consultation document would likely be examined by the Treasury Committee. “The U.K. has a world-class reputation for upholding strong corporate governance,” she stated in the release. “The FCA must protect this reputation, especially as the City looks to remain competitive and thrive post-Brexit. Any changes mustn’t dilute the protection afforded by the ‘premium listing’ brand.”

The remarks follow strenuous objections from the U.K. investor community, which remains widely opposed to the new changes. Last month, the Institute of Directors — one of the largest trade groups in the U.K. — said any changes could lead to weaker standards and governance problems.Other firms to have publicly criticized the proposed changes include Aviva Investors, Hermes Investment Management, Royal London Asset Management, and Schroders.

A spokesman for the Financial Conduct Authority confirmed to Institutional Investor that the regulator had received the letter, adding, “We will respond in due course.” Saudi Aramco did not respond to a request for comment at the time of publication.