Financial Conduct Authority slammed as Shein IPO is approved

Shein IPO Receives Preliminary Approval Amidst Ethical Scrutiny

The Financial Conduct Authority (FCA), the UK’s financial regulator, has reportedly given preliminary approval to the Shein IPO, a move that has sparked controversy and accusations of prioritizing profit over ethical concerns. This decision paves the way for the Chinese fast-fashion behemoth to proceed with its highly anticipated London Stock Exchange listing, despite ongoing child labor concerns within its supply chain.

FCA Green Light Sparks Industry Disquiet

While the FCA’s endorsement marks a significant step towards the initial public offering (IPO), Shein still requires the approval of Chinese regulatory bodies. However, prominent UK investment management firms, including Aviva Investors, Schroders, and M&G, have voiced apprehension, suggesting that this float could jeopardize London’s standing as a leading global financial hub.

James Alexander, head of the UK Sustainable Investment and Finance Association, highlighted that investors have consistently expressed unease about exposure to Shein, citing persistent allegations of forced and child labor in its manufacturing network.

He cautioned that a decline in governance and ethical benchmarks could damage the UK’s reputation as a reputable financial center in the long run. The FCA declined to comment on the Reuters news agency report, notably just a day after the reappointment of its director, Nikhil Rathi, for another five-year term by Rachel Reeves.

Market Instability Clouds Shein’s Ambitions

However, the volatile economic climate has introduced uncertainty into Shein’s controversial listing strategy.

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Russ Mould, investment director at AJ Bell, described the FCA’s preliminary approval as “undeniably significant.” He noted that Shein had initially aimed for a market debut in the first half of the year, but prevailing conditions now make this timeline “highly challenging.”

Turbulence across global stock markets could further impede the approval process in China.

The United States has recently introduced sweeping tariffs on goods from China – Shein’s primary production base – causing considerable market fluctuations. Furthermore, former US President Donald Trump eliminated a customs loophole that previously allowed Shein and competitor Temu to avoid import duties on shipments valued under $800.

Experts predict these policy changes will necessitate price increases for Shein in the US, its largest consumer market. However, Shein CEO Donald Tang has sought to downplay these concerns, asserting that the company’s focus remains on customer satisfaction, not trade policies.

Valuation Adjustments and Ethical Concerns

The online retail giant had initially sought a substantial £50 billion valuation for its flotation, but reports suggest it has faced pressure to reduce this figure to approximately £23.8 billion – occurring at a time when London is experiencing a decline in company listings compared to rival exchanges.

The FCA’s approval follows expressions of concern from Members of Parliament to regulators regarding the firm’s lack of transparency in light of abuse allegations.

Shein, headquartered in Singapore, was originally established in China and depends on Chinese suppliers for its affordable clothing lines.

Human rights organizations have long criticized China for human rights violations, particularly alleging the forced labor of Uyghurs, a predominantly Muslim ethnic minority, in cotton production. Beijing refutes these accusations, and Shein maintains a “zero tolerance” policy regarding forced labor within its operations.

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