The FCA confirmed today that it will consult on better protection for investors when Special Purpose Acquisitions Companies (SPACs) are used as takeover vehicles.

The move could open the door to SPACs being used to acquire Financial Planning and wealth management firms.

Shell companies or takeover vehicles are increasingly used in the UK by private equity firms to acquire listed companies, including major Financial Planning and wealth management firms. However SPAC structures, while popular in the US, are rarely used here at present due to lack of regulation and understanding.

In the US SPACs are often known as "blank cheque" companies where large sums of money are raised by listed SPACs from investors to then 'shop' for acquisitions.

The move by the FCA could encourage more financial firms to set up SPACs to acquire more wealth businesses. A number of firms in the UK, including Goldman Sachs, are building SPACs teams.

One key change under consideration by the FCA could be encouraging takeover targets subject to an offer from a SPAC to continue to list on the markets rather than suspending listings as often happens now.  The FCA said opening the door more widely to SPACs would bring the UK more closely into line with other major jurisdictions.

The move by the regulator follows the recent Lord Hill Listings Review which has recommended more effort to encourage IPOs on the UK markets and more listed companies generally, post Brexit, to avoid the UK losing out to EU markets.

Lord Hill found that the number of listed companies in the UK has fallen by about 40% since 2008. He urged more encouragement for SPACs but says safeguards for investors must be improved at the same time.

His report stated: “We also recommend changes to the Listing Rules to remove a barrier which currently deters special purpose acquisition companies (SPACs) listing in the UK. We accompany this with recommendations for additional safeguards for investors so that they would be able properly to scrutinise both the benefits and potential downsides of these new vehicles.”

Following the Lord Hill report, which was published earlier this month, the FCA said it will be consulting shortly on amendments to its Listing Rules and related guidance to strengthen protections for investors in SPACs. 

The consultation will look at SPAC features and enhanced disclosure, including a minimum market capitalisation and a redemption option for investors to provide “appropriate” investor protection. 

The consultation will be open for a 4-week period. New rules, if adopted, would be published in early summer.

• Lord Hill Listing Review