Shein’s IPO is facing delays due to scrutiny from the Financial Conduct Authority (FCA) over its supply chain, particularly allegations regarding cotton sourced from Xinjiang amid human rights concerns. The NGO Stop Uyghur Genocide has raised issues about potential forced labor. While Shein claims a zero-tolerance stance on such practices, the FCA’s review process remains ongoing. Recent regulatory changes in the UK may benefit Shein, but the company’s governance will be closely examined amid calls for judicial review.
A High-Stakes IPO Under Scrutiny
The initial public offering (IPO) of Shein has generated significant buzz, yet the process is progressing slower than anticipated. Sources indicate that the Financial Conduct Authority (FCA) is meticulously reviewing the company’s supply chain practices and evaluating potential legal implications. This scrutiny arises following allegations from Stop Uyghur Genocide (SUG), a non-governmental organization that claims Shein utilizes cotton sourced from the Xinjiang region of China, where reports suggest human rights abuses, including forced labor, are prevalent against the Uyghur population.
Headquartered in Singapore, Shein submitted a confidential application to the FCA last June. The company is also seeking approval from Chinese regulators to complete its IPO following the FCA’s assessment.
Challenges Impacting the IPO Process
Months have passed since the application was filed, yet tangible progress remains elusive. In August, SUG escalated the situation by filing a complaint with the FCA, alleging that Shein’s cotton originates from Xinjiang. The United States, alongside various NGOs, has accused China of using forced labor in cotton production.
In defense, a Shein spokesperson emphasized the company’s commitment to a zero-tolerance policy against such practices. The company revealed in an August report that it had encountered two instances of child labor, but no evidence of forced labor. To bolster its governance and address regulatory concerns, Shein announced the establishment of an ESG advisory board in December.
Potential Outcomes for Shein’s IPO
Lorna Emson, a partner at Macfarlanes, notes that the FCA is not required to validate the evidence presented by SUG, typically allowing investors to form their own judgments. Should issues arise, the FCA is likely to engage directly with Shein.
The recent easing of listing admission criteria, prompted by the Labour government’s aim to stimulate IPO activity in the UK, could be advantageous for Shein. Nonetheless, the FCA must ensure that the company’s governance is robust, especially if SUG demands a judicial review.
A similar scenario unfolded when an NGO sought a judicial review following Ithaca Energy’s IPO, which was ultimately denied. Some legal experts believe that Shein’s situation might end in a similar manner, despite the differing circumstances.