A new category has been approved for companies traded on the London Stock Exchange, which will allow oil giant Saudi Aramco to list shares in London.
London has been accused of watering down corporate governance rules in order to accommodate the huge listing.
The Institute of Directors said the move put the "UK's global reputation as a leader in good governance" at risk.
London is vying with New York for the state-owned oil firm's listing, expected to be the world's biggest.
The proposed share flotation will see 5% of the state-owned company sold in an Initial Public Offering.
Aramco has yet to confirm where, or indeed if, it will float the shares, with some reports it may instead shelve the flotation in favour of private share sales.
The City watchdog said there was "considerable benefit to investors" from the rule change.
"These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing," said Financial Conduct Authority chief executive Andrew Bailey.
However, the Institute of Directors said it was "deeply disappointed", calling the move "a reduction in standards".
The Investment Association said it was pleased some investor concerns were reflected in the finalised rules, but it continues to oppose the inclusion of companies in the new category in major equity indices such as the FTSE 100, as this would force UK savers to invest in them.
"Savers must have confidence that a company is run for all shareholders," the Investment Association's chief executive Chris Cummings said.
Mr Cummings added that he expected the FCA to review the new category after two years.
TheCityUK, a membership organisation for London's financial sector, deemed the rules "the product of a thorough and transparent process", adding that it was "key" that the FCA should review the decision "in a timely manner".
Mohammed bin Salman, Saudi Arabia's Crown Prince, has proposed an Aramco share sale as part of his economic reform agenda.
A sale is part of wider plans to help the country ease its dependence on oil exports.
Companies will be able to seek admission to the new category on the London Stock Exchange from 1 July 2018.