FCA proposes more flexibility for Spacs

The Financial Conduct Authority is encouraging special purpose acquisition companies (Spacs) to increase investor protections by offering them greater flexibility.

Spacs, also known as blank-cheque companies, have their listing suspended when they have identified an acquisition target to prevent disorderly trading. This locks investors into the Spac until the deal completes, often taking many months.

The FCA said this was undesirable for investors and the Spac. If Spacs comply with higher investor protection standards the FCA will scrap suspensions, it said.

The protection features include raising a minimum of $200m when the Spac's shares are initially listed, ring fencing of money raised from public shareholders, shareholder approval for an acquisition and allowing investors to leave a Spac before an acquisition is completed.

Clare Cole, the FCA's director of market oversight, said: ‘We are consulting on a set of clear conditions based on which we will not look to suspend the listing of a Spac. These changes should encourage issuers that are willing to provide transparency and strong protections to investors. This should support market confidence and aligns our approach more closely with standards in other international markets."

Spacs are acquisition vehicles set up to take private companies public without the cost and hassle of an IPO. They have boomed in the US and the FCA said its proposals were likely to lead to more large Spacs listing in the UK.

Blank-cheque companies raised more funds in the first quarter of 2021 than in all of 2020. On 17 March 264 Spacs had been launched in 2021 compared with 256 in 2020.

Spacs companies that do not meet the conditions will be suspended once they have identified an acquisition, the FCA said. The regulator said Spacs have highly varied returns and can often result in losses.

"Even if the FCA proceeds with proposed measures, investors should carefully consider whether investing in a Spac is appropriate for them based on all the available information," the regulator said. It will consult on the proposals for four weeks.