If, as has been suggested, the Audit Reform Statutory Instrument—which was withdrawn the day before Parliament was to debate it—was pulled as a result of lobbying by the London Stock Exchange (LSE), then a big mistake has been made.

Indeed, recent lobbying concerning watering down the UK Listing Rules shows that there is a fundamental misunderstanding at the LSE as to what makes a capital market attractive.

The UK for over a decade has been riven with accounting failures, once the sole preserve of the US. The US cleaned its act up with the Sarbanes-Oxley legislation which was criticised at the time as being burdensome. But those reforms have led to fewer scandals in the US, and the US market is clearly a magnet for new listings, rather than lower-quality London.

You can’t corral capital

Similarly, France’s onerous enforcement regime has not led to a shrinkage of that capital market either. It remains London that is in the doldrums.

The thinking of the LSE is that boards who want a softer ride should call the shots so far as listing and accounting requirements go. That is badly wrong. You can’t corral capital: it’s not like herding sheep.

Providers of capital require a degree of comfort on reduction of avoidable risks, which a good regulatory environment can provide.

Yet the drop in standards in London—with corporate disasters such as NMC Health, Patisserie Valerie and Carillon—is enough to cast a shadow of doubt over the UK market in general. Junk standards hide the junk equity of junk companies.

Such a situation was described by Nobel laureate George Akerlof as a “market for lemons”. An environment in which the perception is that too much junk is being put into a market creates no incentive for quality goods to be put into such a market.

UK regulators were once widely respected outside the UK, but that is not now the case. The UK’s light touch regulation has become a soft touch.

The LSE itself has shareholders; it’s time for its investors to wake up to the fact that its ill-thought-through lobbying is undermining its own business.

Tim Bush is head of governance and financial analysis at corporate governance consultancy PIRC