Light touch regulation: Friend or foe? 

Sophia Harrison, director of financial and professional services at Grayling, looks at how a new exchange platform out of Sweden could strike the right chord of regulation for SMEs.

As the world seeks to rebalance its books, SMEs are struggling to find the desperately needed liquidity promised by banks through government lending schemes as well as access to alternative funding methods that will allow them to grow.

This lack of finance, exacerbated by ever more restrictive financial regulations both in the US and Europe, has companies questioning where to go for funding, how to attract market attention and where to find the simplest regulatory framework in which to practice.

Have we reached a point where through increasingly strict regulation we are sending the wrong messages to businesses and alienating precisely those companies we desperately need to kick start our economies? How much more regulation at the cost of funding can be heaped on economies before the noose gets too tight and we choke off the much needed new talent?

Whilst countries look on to see how the financial powerhouses of London and New York re-write the regulatory book, there is a vacuum with alternative funding platforms eager to up their game and grow on their doorstep. Welcome GXG to the London market. The exchange platform set up in Sweden 1998 and launched in London back in 2011, offers companies the benefits of a London listing with European regulations at the same time operating under the umbrella of MiFID and the Danish Supervisory Body.

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It provides a perfect example of light touch regulation, seeking to bring life back in to an otherwise stagnant market. Launched with very little fanfare, it is starting to attract those would be candidates for AIM, which seems to have not only lost its sparkle but is increasingly too costly in both management time and financial membership.

Attracting global start-ups was once the bedrock of the London market, but the IPO pipeline is a shadow of its former self. For companies the size of Westhouse Securities and VSA Capital, management distraction, annual costs, rules and disclosures are becoming a barrier. According to figures from the London Stock Exchange, now only 3 per cent of SMEs use equity to fund growth.

So why would an SME choose the GXG? According to a number of our clients, not enough is being done to breath financial life in to the leading western economies. They have huge concerns around the increasing politicisation of the free market with the US fuelling ever restrictive operating practices, increasing bureaucracy and the time lag in listing impacting on whether a company survives or not.

Businesses need to grow and this light touch platform is one many are considering and moving to. With a three tier graduated structure, OTC, MTF and Regulated Market, it is providing an engine for growth under the MiFID directive.

Getting started is efficient both in terms of cost and time taking anything from 1-3 weeks. As the UK government talks up tech and the rhetoric of supporting SMEs, watch this space, a foreigner is listening and offering. We will be watching the GXG with great interest in the hope of seeing more solid companies come to market and getting the backing they so desperately need.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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