How London can cement its position as an attractive listing destination for fintech scale-ups

Chris Disspain, Non-Executive Director at Ashington Innovation

In recent months, regulators have tabled several reforms to increase the appeal of London’s listing market, after a stall in IPO activity sparked concerns that the City is losing its lustre. In reality, there are several reasons to be optimistic about the future of the capital as an attractive listing destination for companies in exciting growth areas such as fintech.

Whilst across the Atlantic, exchanges such as the NYSE have a higher weighting towards tech, the London Stock Exchange is currently home to over 220 tech and consumer internet companies.

Recently tabled listing reforms are expected to further improve the situation for London’s companies in ‘new economy’ sectors. Last December, Jeremy Hunt announced regulatory changes in his “Edinburgh Reforms,” including a review of MiFID II to boost analyst research coverage for UK companies. In recent years, a number of firms have been losing analyst coverage, the publication of which helps reduce informational asymmetries in the market, results in increased publicity, and a greater level of recognition, and even plays a hand in boosting a stock’s liquidity. However, because financial institutions, especially brokerage houses, have reduced output (with the MiFID II fallout drawing much of the blame) these benefits have been lost.

In the UK context especially, this loss of coverage hits scale-ups and firms in new and quickly evolving sectors such as tech harder than ‘old economy’ firms in industries from Real Estate to Industrials which evolve less rapidly and are generally more well understood in the market.

The UK is rapidly generating fintech success stories and is a hive of investment activity, not just in Europe but globally, in second place only to the US. It is precisely these homegrown success stories and fintech firms that the UK can and should seek to attract via reforms to London’s capital markets ahead of their need to finance the next steps of their growth by tapping public markets. Home to over 2,500 fintech companies, the UK has established the largest fintech ecosystem in Europe. Even though funding for its fintech sector dropped down 37 percent in the second half of 2022, owing to the hit that interest rates and economic volatility has delivered across the board, the UK has endured and retained its position of second place for fintech investment worldwide. In this context, the birth of the next UK unicorn fintech likely isn’t far off. This dynamic ecosystem for fintech in the UK and the talent pool for the sector is one factor that helps make London an attractive destination.

Moreover, the government and regulators also continue to explore ways to nurture non-listed fintech companies and have made great strides in creating a favourable regulatory environment. In Jeremy Hunt’s recent Mansion House speech, the revealed news that the UK’s 9 largest pension funds agreed on a deal that could open up to £50 billion of investment into early-stage businesses, providing these firms in sectors such as fintech with institutional capital to fund growth will surely help UK produce even more fintech standouts. Similarly, the Kalifa Review which has since had its second anniversary, following publication has helped lay the groundwork to ensure that London holds on to its competitive advantages.

In terms of other structural upsides to the City, while Brexit has provided London with the opportunity to streamline listing bureaucracy, the London Exchange still sits in a sweet spot where it can scrap the EU-era regulatory rules, whilst still providing access to the deep pools of wider European capital as well as being an excellent springboard for organic growth opportunities on the continent.

It is positive that we can now speak of green shoots too, as we turn the corner on the recent dearth of UK IPO activity and a dip in money raised on the UK flagship exchange. While my SPAC, Ashington Innovation, which was listed on the main market in June, was just one of ten LSE IPOs in the second quarter of 2023, London is expecting a greater number of IPOs in 2024. Ashington Innovation is seeking acquisition targets in the fintech sector and aims to support their development with the benefits that access to London’s capital markets afford.

The London markets indeed still have room for improvement and creating an even more favourable environment for tech firms as evidenced by some of the high-profile valuation dropdowns from the listing price we have seen in London for firms in the tech and payments space – which serve as a demonstration that the reforms with respect to investment research are overdue and may prove a decisive step in helping us move past the unduly pessimistic narrative that dogs the City in some quarters.

As the UK continues to create the optimal conditions to scale private fintech companies, the City which has already cultivated a rich landscape will be well served by the tabled reforms which if delivered in a timely fashion will help best position a London exchange to capture the next wave of UK fintech leaders, boosting the UK economy by strengthening its fintech sector an area where the UK is a world leader.