UK governance reforms risk capital fleeing public markets, regulator says

The chief accountant of Britain’s Audit Office has criticized ministers for not going further in a proposed overhaul of the corporate governance regime and warned they risked exacerbating the flight of companies from London’s public markets.

The government announced in May that it would broaden the definition of “public interest entities” (PIEs) and introduce about 600 additional private companies under a tighter regulatory regime that currently applies mostly to publicly traded companies.

The move was less far-reaching than options set out in an official consultation last year, the most radical of which would have roughly doubled the number of PIEs to 4,000, which would have included about 2,000 more private or family businesses.

Sir Jan du Plessis, chairman of the Financial Reporting Council, said the changes would “help build confidence that more systemically important companies fall within the regulator’s scope” but that more private companies should be included in the regime.

If the government wanted to protect groups like workers, retirees and suppliers who have been hit by recent corporate collapses, the PIE rules “should be applied consistently, regardless of whether a company of a certain size is publicly traded or privately held,” he said.

The new definition is “too narrow” and risks inducing large private companies to avoid public markets, he added.

Under the government’s plan, private companies with fewer than 750 employees or annual sales of less than EUR 750 million would

Du Plessis said the decision “unfortunately created another reason why some companies would find the comforts of the private equity world too attractive to resist, exacerbating the significant long-term flow of capital away from public markets.”

Speaking at an event for corporate finance chiefs hosted by recruiter Odgers Berndtson on Tuesday, the former chairman of telecoms giant BT and miner Rio Tinto said he was “deeply concerned by the significant incentives we are now offering capital to public markets.” to leave”.

He also questioned “why do we allow our regulatory systems to discriminate between public and private capital in this way”.

The UK stock market has suffered from a ‘de-equitisation’ trend in recent years, with the value of public companies being privatized far outweighing the value of companies de-listing their shares.

Ministers backed recommendations by Lord Jonathan Hill, former EU Commissioner for Financial Services, and City Solicitor Mark Austin, who proposed cutting red tape to boost public markets in London.

The restructuring of the PIE regime is part of a broader planned overhaul of audit and corporate governance rules following a series of financial scandals including the collapse of retailer BHS, outsourcer Carillion and cafe chain Patisserie Valerie.

Du Plessis also expressed “frustration” at the government’s slow pace of progress in implementing long-awaited reforms.

It’s been nearly four years since a government-commissioned report recommended replacing the FRC with a more powerful regulator called the Audit, Reporting and Governance Authority.

Ministers have pledged to publish bills outlining the reforms in the current parliamentary session, which runs until April, but have not said when the new laws will be passed.

The Department of Enterprise, Energy and Industry Strategy, which is responsible for corporate governance reforms, did not respond to a request for comment.

https://www.ft.com/content/e7c11d87-833d-48ac-b1b6-6390239a322a UK governance reforms risk capital fleeing public markets, regulator says

Adam Bradshaw

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