If, as has been suggested, the Audit Reform Statutory Instrumentâwhich was withdrawn the day before Parliament was to debate itâwas pulled as a result of lobbying by the London Stock Exchange (LSE), then a big mistake has been made.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, Franceâs 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 canât corral capital: itâs 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 Londonâwith corporate disasters such as NMC Health, Patisserie Valerie and Carillonâis 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 âmarket for lemonsâ. 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 UKâs light touch regulation has become a soft touch.
The LSE itself has shareholders; itâs 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
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