The Financial Reporting Council's proposal to relax auditing standards for Chinese companies seeking London listings represents a troubling compromise between regulatory integrity and political expediency. Whilst it aims to revive Britain's capital markets, it risks undermining the investor protections that underpin market confidence.

Political Expediency Over Prudence

Fresh from Sir Keir Starmer's fence-mending trip to Beijing, this regulatory shift appears less a considered policy evolution than a political gesture. The FRC itself acknowledged in 2022 that Chinese auditing standards fall short of UK equivalency, noting "potential for further divergence since then". This assessment hasn't changed—only the political pressure to ignore it has intensified.

The proposal asks investors to accept audit documentation they cannot verify, prepared according to standards the regulator has deemed inadequate. This is not theoretical. Luckin Coffee's fabricated revenues and the wave of US delisting scandals in 2011-2012 share a common thread: inadequate audit oversight enabling material misstatements to persist unchallenged.

False Promises

The Shein listing collapsed not solely due to audit standards but over fundamental disagreements about risk disclosure—an issue this proposal doesn't address. Meanwhile, genuinely attractive companies with sound governance rarely struggle to meet established audit requirements. What this change truly attracts is firms seeking the regulatory path of least resistance.

The consultation's narrow scope and temporary framing suggests even the FRC recognises the proposal's weaknesses. Yet temporary measures become permanent once vested interests develop, and a single major audit failure can devastate investor confidence across an entire market.

The Wrong Solution

Britain's capital markets need revitalisation, but the solution lies in addressing genuine barriers: excessive regulatory costs, pension fund allocation patterns, and fragmented retail investor participation. These structural issues require sustained attention, not gestures towards Beijing.

True competitiveness derives from market integrity. Investors choose venues they trust, where audit opinions carry weight. The FRC's proposed amendment threatens this foundation, trading long-term credibility for short-term listing statistics that may prove illusory.

If the UK genuinely wishes to attract Chinese listings, it should demand equivalent audit standards rather than accepting inferior ones. Political pressure to deliver growth is not a reason to compromise investor protection—it is precisely when such pressure intensifies that regulatory independence matters most.

The consultation remains open. The FRC should remember that regulatory credibility, once lost, cannot be recovered with another policy reversal. Some barriers exist for good reason, and this is one worth keeping.