A listing under close scrutiny

Shein's IPO is eagerly awaited, but is taking longer than expected. According to sources close to the matter, the Financial Conduct Authority (FCA) is scrutinizing the company's supply chain monitoring practices and assessing the associated legal risks. This follows a challenge by Stop Uyghur Genocide (SUG), an NGO which points the finger at the alleged use of cotton from China's Xinjiang region, where the Uyghur people are said to be subjected to human rights abuses, including forced labour.

Singapore-based Shein filed a confidential application with the FCA last June. The company is also awaiting approval from Chinese regulators to finalize its IPO following the FCA's verdict.

Accusations slowing down the IPO

Six months after filing the application, little concrete progress has been reported. In August, SUG took the matter to court and sent a dossier to the FCA denouncing the origin of the cotton used by Shein, claiming that it comes directly from Xinjiang. The United States and several NGOs accuse China of exploiting forced labor there, particularly for cotton harvesting.

In response, a Shein spokesperson stated that the company has a zero-tolerance policy on such practices. In August, Shein published a report stating that it had identified two cases of child labor, but no cases of forced labor. In December, the group announced the creation of an ESG Advisory Board to strengthen its governance and meet the expectations of regulators.

An outcome in Shein's favor?

According to Macfarlanes partner Lorna Emson, the FCA has no obligation to verify the evidence presented by SUG, and generally leaves it to investors to draw their own conclusions. If a problem is identified, the FCA will prefer to deal directly with the company.

The recent simplification of listing criteria, introduced under pressure from the Labour government to boost IPOs in the UK, could work in Shein's favor. However, the FCA must ensure that the company's governance is sound, particularly if a judicial review is requested by SUG.

A similar precedent saw an NGO apply for judicial review after Ithaca Energy's IPO. This application was rejected, and some UK lawyers believe that Shein's case could suffer a similar fate, despite the differences in context.