Britain's financial regulator has proposed far-reaching reforms of its listing rules to close loopholes allowing reverse takeovers and reinforce corporate governance standards, in a bid to better protect investors.
The Financial Services Authority (FSA) said on Tuesday it plans to tighten up the rules that allow exemptions for takeovers where a company gets a London listing through the back door, by merging with a listed firm.
The British regulator also said it will insist on a majority of independent directors on the board where a controlling shareholder exists.
The announcement comes just days after Bumi , an Indonesian venture that was listed on the London Stock Exchange following a reverse takeover, launched an inquiry into $500 million of alleged irregularities at subsidiaries.
"We believe these proposals will strengthen the investor protections afforded by the Listing Regime, particularly for companies with controlling shareholders," said David Lawton, the FSA's director of markets.
Changes to the rules on reverse takeovers - where a private company takes over a public one in order to bypass the complex and lengthy listing process - will take effect from the start of next year, the regulator said. The corporate governance changes are effective immediately.
The use of reverse takeovers to fast-track London Stock Exchange listings for companies based in emerging markets has been criticized for posing risks to shareholders, particularly those investing passively through funds tracking key indices.
Critics also warn the practice could undermine the credibility of the London stock market.
In a consultation paper in January, the FSA said the reforms would help clamp down on such practices by tightening up on exemptions to the existing reverse takeover rules.
The FTSE Group, which runs the blue-chip FTSE 100 index, took similar steps to increase investor protection in December. It said then that it was tightening rules governing entry to its indices in order to protect minority investors and stop companies with poor corporate governance from exploiting loopholes.
Last week, Bumi hired London law firm Macfarlanes to launch an urgent investigation into potential financial irregularities at its subsidiaries, including PT Bumi Resources, sending its shares spinning.
(Editing by Catherine Evans)