EC directive on IPOs threatens City

Link: EC to relax rules on IPOs

The directive contains no requirements for two essential elements in a flotation – the long form report and the working capital adequacy report – both of which are prepared by reporting accountants and, if lost, could see huge chunks of work and regulatory rigour abandoned.

The European Commission’s prospectus directive, makes no requirement for these reports as part of the due diligence for an IPO and has raised concerns that not only will work go but the regulatory strength of the City could be undermined.

Ian Smart head of corporate finance at Grant Thornton, said the UK model had ‘stood the test of time’. ‘Most importantly it appears to give the investors the protection they want,’ he added and suggested that in the current post-Enron environment it would not be a good time to remove elements of due diligence.

The long form report is commissioned by the investment banks ‘sponsoring’ a flotation. The other is usually commissioned by company directors who have to sign a statement of working capital adequacy as part of an IPO and need to be seen to be going through the correct ‘due diligence’.

Peter Wyman, president of the ICAEW, has also attacked the directive.

He has gone on record as saying it has an ‘alarming lack of clarity’ and is ‘difficult to interpret’.

Wyman wants the prospectus directive set as a ‘minimum’ requirement as opposed to the ‘maximum’ requirement the commission intends.

‘Imposing maximum requirements could have the undesirable effect of dragging down standards in markets such as London and drive the non-EU companies to other capital markets.’

The prospectus directive is seen by the commission as a way of creating standardised requirements of disclosure for companies attempting to raise money in Europe.

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