Why we need to light a bonfire of red tape in the City
We need to encourage more firms to list on the stockmarket. That should be easily achieved, says Matthew Lynn.


In between launching, scrapping and then relaunching the furlough scheme, unveiling another emergency support package and figuring out how to borrow another couple of hundred billion without anyone noticing, Chancellor Rishi Sunak is finally about to do something useful for the long-term strength of the City. The government is about to launch a review of the listing rules on the stockmarket, tasked with making floating a company more attractive. Lord Hill, a non-executive director of the Treasury, is being lined up for the job.
Action is clearly needed
Something needed to be done. The number of companies listed on the London market has almost halved over the last two decades. Over the last five years it has dropped from almost 2,500 to a little over 2,000. It is still falling and hardly any new businesses are joining (there were just ten Aim floats last year, and 26 on the main market).
This is not just a British issue. The same thing is happening on Wall Street and on most of the main European markets as well. The rise of private-equity and venture-capital firms means there are plenty of other ways to raise capital without all the hassle and scrutiny of a full listing, and the increasing burden of regulation has increased costs dramatically. At this rate, in another couple of decades there won’t be enough companies to have a FTSE 100 index anymore. We will have to go back to measuring the FT-30. That matters. If there aren’t any companies on the market, and if the few that remain date back decades, then ordinary people have no chance to share in the wealth a market economy creates.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
There is a case for change and there are two obvious places to start. First, ditch the corporate governance rules. Over the last 30 years we have introduced a new code for quoted companies to follow on average every two years. There are guidelines on when financial statements need to be published, and in what form, and when and how you can release them to the public. There are rules on who sits on the board, and how much they can be paid, and now there has to be the right number of women as well. Pay scales have to be monitored, and length of service. There is almost no decision a quoted company can make without having to check it complies with one of the codes.
And yet over that time there has been no noticeable improvement in the way companies are run or in the performance of the market. The FTSE is still trading at below the level it was at the end of 1999. Most investors would probably have been happy to be “protected” a little less if it meant the value of their portfolio went up.
Second, we should scrap minimum listing requirements. Lots of founders, and tech founders in particular, don’t want to give up control of their business. Why would they? They created it, and they almost certainly care about it more than anyone else. They mainly just want to cash in some of their shares, and they want some of the kudos and status that comes with a public listing. If they only want to sell 5% of the shares, and if they want to put some restrictions on them, then that should be fine. Sure, there is some risk for investors. But in return they will get a slice of some of the fastest growing companies around.
One rule to rule them all
In fact, we could strip the rules back to one very simple stipulation: a company has to be able to publish three years of audited accounts and financial statements, double checked by a genuinely independent accountant. It can show a profit, a loss, and any kind of balance sheet, and shareholding structure it likes, so long as it is open and transparent about it.
Beyond that, it should be up to individual investors whether they want to buy any shares in it or not. Once it is listed, it should have to publish those accounts once a year, and get them independently checked, but after that how it is run should be up to the shareholders and the board. And that should be it. We don’t need any further rules. We just need to sweep away the codes and regulations. Instead of a review, Sunak should just get on with that – because it is clear that two decades of intrusive regulation have not made the markets any better.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
Is property investment still as safe as houses? Why golden era could be over
The golden era of property is over and investors are better off in the stock market, new research suggests
-
What Santander’s takeover of TSB means for customers
Santander is set to buy rival TSB for £2.65 billion. What does it mean for customers, and could we see the TSB brand disappear from the high street?
-
Aim has missed its target – will it recover?
Aim, London's junior stock market, has become less appealing to investors amid scandals and an upcoming inheritance tax blow next April. Will it make a turnaround?
-
Investors remain calm as the Middle East war unfolds
Conflict in the Middle East has failed to shake oil or stock markets. Can the peace hold?
-
London's new private stock market Pisces 'faces three big problems'
Opinion The Pisces exchange may fill a gap in the market, but it won’t address the real problem, says Matthew Lynn
-
Spectra Systems: a 'boffin-led' tech stock with business acumen
Opinion Patient investors will get paid well as they wait for success from Spectra Systems, a promising Aim stock, says Jamie Ward
-
How amateur investors could rescue UK stocks
Private investors must be the beneficiaries of a stock market recovery, says Bruce Packard – not brokers and fund managers
-
The British railway industry is in rude health – here's why investors should jump aboard
The railway industry has bounced back from the devastating impact of the pandemic and is entering a new phase of development – and profitability
-
A cyclical case for UK stocks
Opinion Depressed margins and relatively low valuations mean the UK market could rally strongly as conditions improve, says Cris Sholto Heaton.
-
Aberforth Smaller Companies Trust: a fund that lets you buy Britain on a triple discount
Opinion If UK stocks return to favour, Aberforth Smaller Companies Trust, a value-focused investment trust, should perform well, says Max King