Audit rules pose threat to LSE flotations

The head of accounting’s watchdog has warned that new audit rules from Europe
could deter foreign companies from listing on the London Stock Exchange,
potentially putting a dent in the predicted boom in flotations.

Paul Boyle, chief executive of the Financial Reporting Council, said London
could be a less attractive place for investors and companies under new audit
rules, introduced in response to the US Sarbanes-Oxley Act, giving regulators
extra territorial powers.

Proposals in the European Union audit directive, due to come into force in
2008, would require foreign audit firms working for non-EU companies listed
within the union to be registered with the national regulator where the listing
is situated.

This would mean that the auditors of companies from countries like the US and
Russia would need to be registered with the FRC in the UK and be subject to
inspections by them.

Research from KPMG showed that 307 new IPOs on both AIM and the main stock
market in 2005 raised more than £8.5bn, which was the highest increase in five
years.

Boyle said that, although London was still a more attractive place to list
than the US because of Sarbanes-Oxley requirements, the new rules slightly
eroded London’s advantage.

Boyle argued that it was imperative that the right balance was stuck between
looking after the interests of investors and making London an attractive place
to list.

‘Regulation is anti-competitive ­ you are trading off consumer protection on
the one hand against attractiveness of a place to do business on the other
hand,’ he said.

A spokeswoman for the LSE argued that since the legislation was not yet set
in stone it was not possible to say it would alter the attractiveness of London
to investors.