Chinese firms listing instrument in the UK could be given a special audit regime, according to a consultation issued by the UK’s audit and corporate reporting watchdog.

The Financial Reporting Council has launched a consultation on allowing auditors of Chinese companies to use Chinese audit standards. The move comes within weeks of the government cancelling plans for audit reform proposals that were debated for eight years.

The consolation follows a “request” from the UK government looking for ways to ease the regulatory burden on Chinese companies look to list in London.

According to the consultation paper: “The proposed amendment is intended to support a shared wider government objective of boosting UK economic growth and strengthening London’s global market competitiveness, while ensuring that appropriate safeguards remain in place.”

Chinese companies and their listing have been on the agenda of regulators and policymakers before. The consultation comes a year after retail giant Shein announced intentions to list in London, but shifted attention to Hong Kong following controversy over allegations about its human rights record.

In an article published in June last year, CCLA chief executive Peter Hugh Smith wrote: “Do we prioritise short-term gains by welcoming companies with a track record of alleged irresponsible labour practices, or do we uphold our commitment to responsible business conduct?”

The UK has also gone through considerable reform of listing rules to attract high-growth companies, including Chinese tech giants.

Changes have allowed more flexibility in dual class share listings and reduced disclosure requirements for significant transactions. In some quarters, the UK was viewed as ‘playing catch-up’ with other exchanges that had already introduced dual class shares, like Hong Kong. Elsewhere, there were concerns about the risk of undermining corporate governance.

The consultation on Chinese audit standards comes just weeks after the UK government decided to end work on reforming the audit landscape, a process underway since the collapse of Carillion in 2018.

Reforms would have created a new audit regulator with boosted powers over audit committees. Original proposals also envisaged the introduction of managed shared audit (a small audit firm working alongside a Big Four firm on the same mandate). The idea has long since disappeared from the reform debate after officials concluded that audit quality in the UK had improved.

The current proposals would be temporary measures while the government puts in place legislation. Chinese firms are concerned about current regulatory requirements to use International Standards on Auditing (ISAs), according to the consultation document.

The measures would only apply to companies in the “stock connect” programme which allows Chinese companies to issue global depository receipts on the London Stock Exchange.

In a 2021 review, the FRC concluded that Chinese standards were not equivalent to ISAs. As a result Chinese companies listing in the UK have been required to use ISAs instead or in addition to Chinese standards. There are currently six Chinese companies listed on the London Stock Exchange.