Aramco oil Ian Timberlake/Getty Images

A Regulatory Race to the Bottom?

The United Kingdom's Financial Conduct Authority wants to relax listing conditions for state-owned issuers wishing to qualify for the London Stock Exchange Premium Listing Segment. But by offering valuable SOEs like Saudi Aramco preferential treatment, the FCA is putting institutional investors at serious risk.

DUBAI – Amid intense competition for the anticipated listing of Saudi Aramco – the world’s largest oil company, owned by the Saudi state – stock exchanges and financial-market regulators are under pressure to provide incentives for the company to dual-list its shares abroad. The United Kingdom’s Financial Conduct Authority (FCA) seems to be bowing to that pressure.

Last month, the FCA issued a proposal to relax listing conditions for state-owned issuers wishing to qualify for the London Stock Exchange (LSE) Premium Listing Segment – the exchange’s “gold standard” segment, governed by stringent regulations. The proposal is presented as a mere technicality, but it is significant for reasons that extend beyond Saudi Aramco. In fact, it implies that regulators now believe that state-owned enterprises (SOEs) deserve special regulatory treatment.

In its consultation paper, the FCA states that “sovereign owners tend to be different from private-sector individuals or entities both in their motivations and in their nature.” It is a valid assumption – and precisely the reason why SOEs should notbe given preferential regulatory treatment.

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