The role and responsibilities of a Sponsor

When a sponsor must be appointed

In certain circumstances, issuers with a listing of equity shares in, or applying for admission of equity shares to, the following listing categories, may need to appoint a sponsor or seek a sponsor’s guidance:

• The equity shares (commercial companies) category.
• The closed-ended investment funds category.
• The equity shares (shell companies) category.

We have targeted the requirement for a sponsor towards the more complex transactions that an issuer undertakes or where particular risks of harm exist. Examples of circumstances requiring a sponsor include:

• The submission to the FCA of a prospectus in relation to an Initial Public Offering (IPO) or a further issue of equity shares (unless exemptions from the prospectus requirement apply).
• The submission to the FCA of a circular relating to a reverse takeover.
• The submission to the FCA of a letter setting out how an issuer satisfies our requirements on eligibility for listing.
• Where a fair and reasonable opinion from a sponsor is required in relation to a related party transaction
• Where an issuer seeks individual guidance from the FCA or requests that the FCA modifies, waives or substitutes the operation of certain rules.
• Where the FCA requires it, because there has been or may be a breach of our rules.

There are a range of other circumstances. Chapter 4 of the UK Listing Rules (UKLR) sourcebook sets out in detail when a sponsor must be appointed or its guidance obtained (UKLR 4.2.1R to UKLR 4.2.6R).

The sponsor's role

Sponsors are experts on our listing regime. They advise, guide and educate their client companies on their obligations under the UKLR, Prospectus Rules: Admissions to Trading on a Regulated Market, disclosure requirements and transparency rules.

In addition, sponsors owe responsibilities to us. In relation to some sponsor services such as an IPO, a sponsor provides an assurance to us on the terms set out in the relevant part of UKLR 24.3, that the responsibilities of the company have been met.

When performing their work to support their duties as a sponsor, sponsors will perform due diligence. This may involve them challenging their clients and/or verifying statements.

The principles for sponsors

The principles for sponsors are set out in UKLR 24.2 and set standards that a sponsor must meet whenever it performs a sponsor service including:

• Acting with due care and skill.
• Acting with honesty and integrity.
• Taking reasonable steps to satisfy itself that the directors of the issuer or applicant understand their responsibilities and obligations under the UKLR, disclosure requirements, and transparency rules.
• Notifying us if it becomes aware that an issuer or applicant is failing or has failed to comply with its obligations under the UKLR, disclosure requirements or transparency rules.
• Taking all reasonable steps to identify and manage conflicts of interest that could adversely affect its ability to perform its functions properly under UKLR 24.2.

Sponsor's assurances to the FCA

Depending on the nature of the transaction in question, a sponsor may be required to provide us with certain assurances. These can include, for example:

• Confirming that the company meets the eligibility criteria.
• Ensuring that the directors of the company understand their responsibilities and obligations under the UKLR, disclosure requirements, and transparency rules.
• Confirming that the company satisfies all requirements of the UKLR relevant to an application for admission.
• Confirming that a (reverse takeover or relevant related party) transaction will not have an adverse impact on the company’s ability to comply with the UKLR or the disclosure requirements or the transparency rules.
• Confirm that the directors of the company have established procedures to enable the company to comply with the UKLR and the disclosure requirements and transparency rules on an ongoing basis.
• Confirming that the directors of the company have established procedures which provide a reasonable basis for them to make proper judgements on an ongoing basis as to the financial position and prospects of the company and its group.
• Confirming that the directors of the company have a reasonable basis on which to make any working capital statement required by the rules.
• Notifying us if, in connection with the provision of a sponsor service, a sponsor becomes aware that it, or a company has failed to comply with its obligations under the UKLR, disclosure requirements or transparency rules.
• Confirming the issuer meets the eligibility requirements of the UKLR that are relevant to the new category to which it is seeking to transfer.

Other requirements of a sponsor

Alongside these assurances, a sponsor is also required to (amongst other things):

• Provide expert guidance to companies seeking or which have an existing listing on the UKLR, disclosure requirements, and transparency rules, and our processes.
• Communicate with us, as an expert, on the company’s behalf when reviewing a prospectus or circular.
• Ensure that all matters known to it which, in its reasonable opinion, should be taken into account by us in considering the relevant transaction are included in the relevant document or notified to us to ensure full disclosure is made. For a company seeking a listing in a category to which the sponsor regime applies (refer above), this would include matters such as whether the admission of the shares would be detrimental to investors’ interests.

What a sponsor is not responsible for

A sponsor is not responsible for the pricing, marketing, distribution or allocation of the securities in an IPO or further equity offering requiring a prospectus (eg rights issue or placing).

However, because a sponsor will often have multiple roles on a transaction (for instance, financial adviser, bookrunner, underwriter, corporate broker or lender) it is possible that the same firm may be involved in these activities.

Where sponsors are also FCA authorised firms, they are subject to other FCA requirements and oversight regarding other regulated activities.

What protections the sponsor regime does not offer

There are some protections which the sponsor regime does not offer:

• A sponsor is not required to be retained on a permanent basis. The role it is required only in certain circumstances (typically in relation to a specific transaction). Sponsors therefore do not provide ongoing guidance or support in relation to listed issuers.
• Although the sponsor provides us with an assurance that the directors understand their responsibilities and obligations under the UKLR, disclosure requirements and transparency rules, the sponsor is not accountable for the ongoing actions of the directors or the issuer’s management.
• Although the sponsor provides us with an assurance that the directors have established procedures which enable the company to comply with the UKLR, the disclosure requirements and transparency rules on an ongoing basis, this assurance is given to us at a point in time and the sponsor cannot guarantee the procedures will be operated effectively by the company going forward.
• Sponsors typically conduct considerable due diligence. However, their reasonable opinions are provided after due and careful enquiry and to a standard of due care and skill. Sponsors, and the experts they rely upon, may not identify circumstances where there has been fraud and/or dishonesty.

Where a company applies for listing for the first time, the company’s sponsor confirms to us in writing that the company satisfies the relevant eligibility criteria. We will also perform an eligibility review.

The eligibility process is limited to eligibility under the UKLR and does not assess the more general suitability (or not) of a particular issuer for life in public markets. However, for professional and reputational reasons, sponsors will typically consider carefully which prospective listings or corporate transactions they wish to be associated with and whether an issuer is ready for life as a listed company.

Although sponsors do not formally ‘endorse’ the suitability of investing in the particular company’s securities, the sponsor helps to ensure appropriate disclosure for investors. A sponsor must ensure that matters that could be detrimental to investors have been disclosed in the prospectus (or equivalent document) or in writing to the FCA.

The disclosure based regime that we operate means that it is up to each investor to decide, based upon the disclosure, whether or not they wish to invest in the company.