UK Equity Capital Markets Insights — December 2025

In this edition of UK Equity Capital Markets Insights, we cover the following developments:

• The FRC’s publication of annual reviews of corporate governance and financial reporting.
• The Investment Association’s publication of updates to its Principles of Remuneration.
• HM Treasury’s publication of regulations relating to the UK’s move to T+1 settlement.
• The LSE’s publication of a Feedback Statement on the future of AIM.
• ISS’ release of its 2026 proxy guidelines.
• The government’s proposal to exempt from stamp duty tax trades in securities in companies that list on a UK regulated market.
• The FCA’s publication of new forms and checklists applying to its new public offers of securities regime.

FRC Publishes Annual Review of Corporate Governance Reporting

On 13 November, the UK Financial Reporting Council (FRC) published its Annual Review of Corporate Governance Reporting (the Review), setting out key findings from an analysis of a sample of 100 randomly selected companies across the FTSE 100, FTSE 250 and small cap that reported in 2025 against the UK Corporate Governance Code 2018 (2018 Code). This was the last year of reporting against the 2018 Code, as the Corporate Governance Code 2024 (2024 Code) became effective on 1 January 2025.

The Review noted many positive developments in terms of UK listed companies’ reporting against the 2018 Code, with reporting in areas such as company purpose, culture and values, shareholder and stakeholder engagement, and diversity and inclusion becoming increasingly clear and transparent. The Review noted that companies are moving to more outcomes-based reporting with a focus on describing actions taken and their impacts as opposed to giving overviews of the policies in place.

However, the Review also encouraged companies to ensure annual reports are kept concise, with the FRC identifying opportunities to reduce reporting, particularly in the stakeholder engagement sections of annual reports. The Review noted that, in many instances, annual reports contained boilerplate language, repetitive content and generic statements that added little value.

Other relevant matters or trends highlighted in the Review included:

• Relatively fewer companies disclosing noncompliance from the 2018 Code provisions, though explanations of noncompliance increased in several areas, including composition of board committees, independence of the chair of the board and the tenure of the chair.
• Reporting on directors’ fulfilment of the principle under the 2018 Code that a board should establish the company’s purpose, values and strategy, and to satisfy itself that those and the company’s culture are aligned, remained weak and generic, with limited detail on directors’ specific actions to embed culture.
• Most companies provided some explanation of how they assess directors’ time commitments, but the Review noted that company disclosures would be more valuable if they explained the specific qualitative factors considered and suggests moving away from a purely numerical approach to over-boarding.
• Reporting on governance continued to mature, with 66% of companies highlighting board-level oversight of cyber risks. AI governance is rapidly emerging, with 86% of companies mentioning AI, often providing detailed insights into governance arrangements.
• Disclosures relating to remuneration included some use of discretion in amending variable awards, widely adopted but rarely invoked malus and claw-back provisions and a strong majority of companies having post-employment shareholding guidelines.

Investment Association Publishes Principles of Remuneration

On 12 November, the Investment Association (IA), a trade association for UK investment managers, published an open letter to listed company remuneration committee chairs, which provides an update on the implementation of the IA’s 2024 principles of remuneration (which are principles seen as important to UK asset managers and which are intended to assist listed company remuneration committees in making decisions that align with the long-term interests of listed companies and their shareholders) and emerging views on issues that are likely to be of importance to IA members during the AGM season in 2026.

The letter confirms that there are no changes to the principles for this year’s reporting season but notes areas in which the IA sees room for improvement by remuneration committees, including:

• Limiting the use of “boilerplate” rationale, such as attracting and retaining talent, to justify remuneration decisions. Investors expect explanations for why a particular approach is right for a company’s individual circumstances and strategy and how the choice will impact its future success.
• Using benchmarking to justify remuneration increases, which should be robust and well-explained. The letter highlights several factors committees should explain and notes that if benchmarking suggests a substantial “catch up” increase, committees should assess whether the suggestion is genuinely in shareholders’ interests.
• Companies should adopt “hybrid incentive schemes” (typically a combination of performance share plans and restricted share plans but could be any combination of long- and short-term incentives) only if they have a significant U.S. footprint or compete for global talent. Committees should set out how the scheme aligns with the company’s business model and how it will contribute to the long-term success of the company.
• Performance conditions and underpins should remain in place for the life of awards and not be adjusted or waived unless in exceptional circumstances. In such cases, shareholders should be consulted beforehand and the change needs to be clearly justified.
• Bonus deferral mechanisms should not be completely removed once an executive has built up a significant long-term shareholding as they offer an important mechanism to operate malus and claw-back provisions, and a portion of a non-executive director’s fees may be paid in shares bought at market value. However, consistent with the guidance in the 2024 Code, performance-related pay is inappropriate for non-executive directors.

HM Treasury Releases Policy Note and Draft Regulations Relating to T+1 Settlement in the UK

On 20 November, HM Treasury published a policy note on mandating T+1 settlement in the UK, together with a draft version of the regulations to implement such a step — The Central Securities Depositories (Amendment) (Intended Settlement Date) Regulations 2026 (the draft Regulations).

Currently, trades in securities on UK (and European) financial markets trade on a T+2 settlement basis — that is, trades settle two trading days after the trade date. Following the work of the UK’s industry-led Accelerated Settlement Taskforce and Technical Group, the UK government has committed to legislate to mandate a T+1 settlement period in the UK from 11 October 2027. Among other things, the draft Regulations:

• Amend the standard settlement period for trades in the UK to “no later than the first business day after the day on which trading takes place”. This requires market participants to settle transactions in transferable securities that are executed on a UK trading venue by T+1 at the latest.
• Maintain certain existing exemptions that already apply to the T+2 settlement period: the T+1 requirement will not apply to certain transactions, including privately negotiated trades that are executed on a UK trading venue, bilateral trades reported to a UK trading venue and the first transaction in which the transferable securities concerned are subject to initial recording in book-entry form.
• Introduce an exemption from the T+1 settlement period for securities financing transactions to allow firms to use such transactions flexibly to support their liquidity management and funding requirements.

The deadline for technical comments on the draft Regulations is 27 February 2025. HM Treasury will take such comments into account in presenting the final Regulations to Parliament before 11 October 2027.

FRC Publishes Thematic Review of Reporting by Smaller Listed Companies

On 19 November, the FRC published its Thematic Review: Reporting by the UK’s smaller listed companies (the Thematic Review), which examines the reports of 20 smaller listed Main Market and AIM companies with year ends between September 2024 and April 2025. The Thematic Review focused on the requirements of IFRS Accounting Standards where, as part of the FRC’s routine monitoring work, it most frequently asked substantive questions of smaller listed companies. In particular, the Thematic Review focused on the below areas, which investors pay close attention to:

• Revenue.
• Cash flow statements.
• Impairment of non-financial assets.
• Financial instruments.

The Thematic Review’s key observations included the following:

• Companies should ensure they have a clearly articulated accounting policy on revenue recognition, which covers all material revenue streams and is consistent with the company’s description of its business model.
• The FRC noted that misclassification of cash flows between operating, investing and financing was one of the most common reasons for its enquiries, often stemming from the lack of clear explanation of specific transactions and the rationale for the treatment of the related cash flows.
• Disclosures on impairment reviews of non-financial assets, such as goodwill, should be transparent and should reflect a company’s reasonable and supportable expectations about its future cash flows and market conditions.
• Good quality reporting requires clear explanation of significant judgements and estimates, key assumptions and sensitivity analysis. This must be consistent with the narrative throughout the annual report.
• Generally, consistency of disclosures between financial statements and disclosures elsewhere in the annual report was noted as something that needed improvement.
• The FRC also noted that there was further room to improve conciseness of reporting across annual reports and highlighted that good quality reporting does not necessarily require greater volume.

LSE Publishes Feedback Statement on the Future of AIM

On 21 November, the London Stock Exchange (LSE) published its Feedback Statement on the Future of AIM (Feedback Statement), reflecting feedback received following the Discussion Paper published on 7 April 2025 (for further information, see the May edition of this newsletter).

The Feedback Statement noted the overriding theme of the responses was strength of feeling and support for AIM, highlighting the unique and vital social and economic function of AIM to support the next generation of growth companies. The Feedback Statement focused on four themes:

1. Repositioning AIM to clearly distinguish it from the LSE’s Main Market

   The Feedback Statement noted that the purpose of AIM should be a market that supports access to capital to enable a diverse range of companies at different stages to scale and innovate. It also emphasised the need to recalibrate the risk profile of AIM compared to the Main Market, with the LSE noting that AIM should be a market in which investors understand and take responsibility for their risk appetite.

   The Feedback Statement noted that the role of the nominated adviser should be reset, with the focus having become too much like a compliance function for AIM listed companies, whereas it should be primarily focused on corporate finance advice.

2. Convening government and regulators to support AIM’s growth

   The Feedback Statement noted that the LSE is actively engaging with the UK government, FCA and FRC regarding structural changes required to support AIM’s continued growth that are not within the powers of the LSE. Many of these changes are common across the UK’s capital markets and include: increased pension fund allocations to UK equities, recalibrating tax-advantaged funds (such as the UK’s EIS/VCT structures) to support access to capital as companies scale and initiatives relating to the audits of AIM companies.

3. Rule changes to reduce regulatory burden

   The Feedback Statement sets out comments and/or support received from respondents in response to the April Discussion Paper for certain changes to the AIM Rules for Companies and the AIM Rules for Nominated Advisers. Certain rule changes have been essentially made effective immediately, with the LSE noting that it will consider derogation requests while the necessary rule changes are drafted.

   The proposed rule changes in force or the areas in which the LSE will consider derogations include: dual class share structures which meet the current Main Market requirements will be considered acceptable for prospective AIM companies; acquisitions may be classified as a substantial transaction rather than a reverse takeover if there is no fundamental change of business, although shareholder approval may still be required; and the use of UK GAAP (FRS 102) will be considered appropriate (subject to investor feedback) historical financial information may be incorporated by reference in admission documents.

4. Develop and enhance the operation of AIM and the experience of its users

   The LSE has noted its intention to continue AIM’s pioneering spirit of the last 30 years and intends to develop and enhance its operation and the experiences of the users of AIM, including by:

   • More clearly articulating the benefits of AIM through the LSE’s marketing, by spotlighting success stories that highlight its advantages.
   • Working with market participants to find ways in which such participants can more directly engage with the order book on the LSE’s SETSqx platform (which is a mostly quote-driven system that a large proportion of AIM companies trade through).
   • Considering introducing trading halts for secondary fundraises to reduce transaction risk and the carrying out of a live deal while the price continues to trade, in line with certain other international markets.
   • Reshaping and digitising the admission document required for an IPO on AIM to reduce burdens and enable a document that is more tailored to the requirements of growth company investors.

ISS Releases 2026 Proxy Voting Guidelines Updates

On 25 November, Institutional Shareholder Services (ISS) published updates to its UK and Ireland proxy voting guidelines for 2026, which set out the ISS’ voting policies for the upcoming year based on the views of market participants as to emerging issues and trends. The updated 2026 guidelines will be applied for shareholder meetings held on or after 1 February 2026. Amendments to the 2025 guidelines include:

• Clarifying what constitutes an “in-person meeting”, which is a meeting in a specified physical location in which participating shareholders and board members are physically present enabling direct, in-person interaction. The rationale for this change is in response to a limited number of companies seeking to introduce more restrictive in-person meetings, for example where shareholders are provided with a physical meeting venue but no directors are present.
• Reflecting changes to the UK Listing Rules, including the removal of the requirement for companies with controlling shareholders to have a relationship agreement in place. The guidelines note, however, that companies are still expected to disclose how they ensure independence of management.
• Aligning with UK best practice in which companies treat departing directors as good leavers, by requiring a rationale and justification for such treatment. The ISS noted such an approach is in line with the Investment Association’s Principles of Remuneration.
• Minor updates to reflect the latest UK Corporate Governance Code (applying to Main Market companies) and Quoted Companies Alliance Corporate Governance Code (which may be adopted by companies listed on AIM).

Stamp Duty Relief Proposed for Newly Listed Issuers

On 26 November, the UK government presented its 2025 Budget to Parliament, setting out its policy measures and spending for the upcoming year.

Several of those measures will be of interest to market participants, but in particular the government announced a new tax relief from the 0.5% stamp duty reserve tax charge in relation to trades in shares in a company whose shares are newly listed on a UK regulated market (such as the LSE’s Main Market). This new relief will apply for a three-year period commencing from the listing of the company's shares. This new relief came into effect in relation to trades made on or after 27 November 2025 and applies if the shares are newly listed on or after that date.

FCA Releases New Forms and Checklists

On 26 November, the FCA published its new forms and checklists in relation to the Public Offers and Admissions to Trading Regulations 2024 and the Prospectus Rules: Admission to Trading on a Regulated Market Sourcebook, each of which will come into full force on 19 January 2026 and replaces the EU-derived Prospectus Regulation. (For further information on the new Public Offers and Admissions to Trading regime, please refer to the November and August editions of this newsletter and our detailed client note). The FCA has also published updated Listing Rule checklists reflecting the new regime.

From 1 December, issuers can submit draft documents for review under the Public Offers and Admissions to Trading regime, for approval on or after 19 January 2026. The publication of the forms and checklists is therefore to facilitate any such applications.

UK Equity Capital Markets Insights is a newsletter from Paul Hastings on legal and regulatory developments affecting U.K.‑listed companies and capital markets participants. Sign up here to receive this and other regular updates and invitations from our Equity Capital Markets team.