‘It is encouraging to see that the government has taken our concerns on board,’ says the Quoted Companies Alliance (QCA), talking about the outcome of a proposal seeking to overhaul audit and corporate governance.
The body, which represents small and mid-cap UK-listed companies, had previously spoken out against some of the rule changes that had been proposed, with its own research highlighting the negative impact such proposals could have had on smaller firms.
Having run for four months, the consultation by the Department for Business, Energy and Industrial Strategy is now closed, with some of the more potentially burdensome proposals having been reconsidered. One particularly contentious issue was the plan to expand what is considered a public interest entity (Pie).
The QCA had warned against plans to treat all companies on the Main Market and those on AIM with a market capitalization of €200 mn ($215 mn) – a threshold adopted from EU regulation – as a Pie. Responding to the consultation in February, the QCA argued that doing so would place ‘significant administrative and resource burdens’ on smaller companies and could potentially become an impediment to growth.
‘This consultation caused significant and wide-ranging concerns in our community and represented possibly the biggest threat to our markets in recent times,’ says Tim Ward, chief executive of the QCA, in a statement. ‘But the government has listened and the measures have been, for the most part, targeted at the largest companies rather than placing additional and disproportionate burdens upon small and mid-cap companies that already find it difficult to focus on growing their business while tackling increasing regulatory requirements.’
On the Pie issue, for example, the QCA explains that ‘the government has reconsidered its expansion of the Pie regime from the €200 mn threshold for AIM-quoted companies originally proposed’. Instead, the definition of a Pie has been widened to include private companies and those traded on AIM or Aquis where those companies have more than 750 employees and an annual turnover of more than £750 mn ($942 mn).
This ‘ensures that additional burdens will focus on companies that would impact a significant number of employees, suppliers and customers and potentially have a knock-on effect on the wider economy, rather than simply considering a company of public interest if its shares are traded on public markets,’ says the QCA.
Despite QCA’s success in lobbying the government on behalf of smaller firms, Ward says continued vigilance is needed. ‘It is essential to ensure the new regulator [the Audit, Reporting and Governance Authority, set to replace the Financial Reporting Council], with its increased powers, acts proportionately to ensure the main list doesn’t become unattractive for growth companies, and the idea of public interest is rooted in real impact rather than status or listing location,’ he notes.