UK Strengthens SPAC Investor Protections

Expect to see the pace of deals across the U.K. involving special purpose acquisition companies (SPACs) pick up significantly later this summer and beyond when new rules by the Financial Conduct Authority take hold across the region.

The new FCA rules, which take effect on Aug. 10, include lowering the minimum amount a SPAC would need to raise at initial listing from 200 million pounds to 100 million pounds, and introducing an option to extend the proposed two-year time-limited operating period (or three-year period if shareholders have approved a 12-month extension) by six months in cases where a transaction is “well advanced,” without the need to get shareholder approval.

“The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of our markets,” according to the FCA announcement.

The FCA rules also include a “redemption” option that allows investors to exit a SPAC prior to any acquisition being completed; ensuring money raised from public shareholders is ring-fenced; requiring shareholder approval for any proposed acquisition; and a time limit on a SPAC’s operating period if no acquisition is completed.

SPAC issuers who can’t or won’t meet the FCA’s conditions will be subject to suspension.

As PYMNTS has reported, the use of SPACs as a way of going public skyrocketed in 2020 and has only grown more popular in 2021. The process involves raising funds through an initial public offering (IPO). From there, the SPAC, which itself has no operations, goes looking for a company or companies to purchase.

The rise of SPACs could be a global trend, which the U.K.’s interest shows, although there are some key differences, including that U.S. investors can propose to approve the SPAC acquisition or redeem their funds if they don’t, which European ones can’t do right now.

John Coates, acting director at the SEC’s corporate finance unit, warned of “some significant and yet undiscovered issues” with SPACs. In remarks at a conference, he said that there are “relatively as yet incompletely worked through mechanisms, despite the fact [SPACs] have been around for a while,” but noting that those issues would not stop SPAC deals and listings.

Coates’s observations come on the heels of a March release from the SEC’s Office of Investor Education and Advocacy. That release urged investors “not to make investment decisions related to SPACs based solely on celebrity involvement.” The SEC warned that “celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss.”

In a tweet that accompanied the release, Coates wrote that “the rapid increase in the volume of SPACs represents a significant change, and we are taking a hard look at the disclosures and other structural issues surrounding SPACs.”