A new QCA survey of UK small and mid-caps reveals that these companies:
- Find it challenging to deal with regulatory burden;
- Think that this is the number one reason for the decline in numbers of companies on UK public equity markets; and
- Do not believe that UK policymakers and regulators understand how regulation impacts them.
The UK has over 1,200 small and mid-sized quoted companies, and a survey conducted by YouGov has found that about two-thirds (63%) of small and mid-caps find regulatory compliance either excessive or demanding; one-third (36%) find it manageable.
Of these companies, only 8% think UK policymakers understand the impact that regulation has on their business.
The number of companies listed on stock exchanges in the UK (and US) has nearly halved over the past 25 years, and the amount of capital being raised has fallen by around two thirds. This is a problem as the benefits of healthy public equity markets includes:
- Providing a viable source of finance for growing companies
- Diversifying the reliance of companies on bank finance
- Providing investment opportunities for the public and their pensions
When asked in this QCA survey why they think the number of companies on public equity markets in the UK has fallen, 72% of small and mid-caps say that increased regulatory burden is a reason. Other factors include the rise of public equity (56%).
The 3 most burdensome listing requirements as ranked by small and mid-caps are FCA rules (18%), corporate governance and providing annual reports (17%).
Proportionality in policymaking and regulation for businesses is needed to take account of the reduced resources available for smaller companies.
A recent QCA and Hardman & Co study showed the stark contrast in size between the FTSE 100 and the remaining 1,200+ small and mid-sized quoted companies on the UK’s markets. It found that small and mid-caps account for 93% of all companies on UK public equity markets, but just 20% of market capitalisation.
The QCA Sentiment Index also illustrates how small and mid-caps have limited resources to be able to manage regulatory burden. For example:
- Only 12% of small and mid-caps have in-house government/public affairs roles
- Only 12% have in-house public relations roles
- Only 16% have in-house investor relations roles
- Only 36% have in-house legal affairs roles
- Only 37% have in-house regulatory affairs roles
These are all positions that are likely to be covered by dedicated individuals or teams in large companies,who are therefore better equipped to deal with regulation and rules changes. They can absorb the burden more easily, whereas for smaller companies this can distract and take away resources from working to improve and grow their businesses.
Further results from the QCA/YouGov Small & Mid-Cap Sentiment Index for June 2019 can be found here.
Additional views on Brexit from the survey can be found here.