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Accountants: ‘Smart regulators must be able to tell regulatory burdens from regulatory capital’


25 Nov 2011


Euro & Finance

ACCA (the Association of Chartered Certified Accountants) has given a mixed reception to the European Commission’s latest proposals on reducing regulatory burdens for micro-enterprises.

The global professional body welcomes the Commission’s renewed commitment to better engagement and consultation with Small and Medium Sized enterprise (SMEs), together with its intention to monitor better regulation policies in the member states.

However ACCA stresses that the proposals in the new report from the European Commission to the Council and the European Parliament on exempting small businesses from individual regulations risks misinterpreting the needs of SMEs.

The Commission admits that ‘clear-cut criteria for identifying legislation from which micro companies can be exempted are difficult to identify on a general basis’. Yet ACCA believes there is a sensible way of deciding whether an exemption is likely to be helpful or not.

Emmanouil Schizas, Senior Policy Adviser at ACCA’s SME Unit, explains: ‘Policymakers should start by asking: does this rule create regulatory capital that businesses themselves use to create value? If so, then an exemption is a bad idea and regulators will just have to be smart instead.’

ACCA’s approach to the better regulation agenda views regulation as being similar in many respects to fiscal policy – taxing and spending. Like public spending, not all regulation is the same – regulations that essentially outsource to businesses the State’s administrative functions or its duties such as tax collection or social protection are similar to public consumption. ACCA believes in these cases that regulations need to be kept to a minimum, especially for businesses with no administrative support. ACCA believes the Commission’s approach applies well to these types of regulations.

But other regulations, including those governing financial disclosures, are more like public investment in that they build capital – trust, standards and confidence – which private firms can then leverage to create value.

ACCA’s view is that for such regulations ‘thinking small first’ should not be about exempting smaller businesses beyond some arbitrary cut-off point, as this will only serve to create two-tier markets to the disadvantage of small firms. Instead, it should be about designing regulatory frameworks from the bottom-up, so that all businesses, from the smallest to the largest, share the underlying regulatory capital without larger ones benefiting from an implicit subsidy through lower unit costs of compliance.

Emmanouil Schizas concluded: ‘A lot of good could come of this latest Communication. But if we’re ever going to get to Smart Regulation, policymakers will have to learn to distinguish between regulatory burdens and regulatory capital and accept that some rules lend themselves to exemptions more readily than others.’

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For further information, please contact:

Cecile Bonino

Public Affairs and Media Relations Officer-EU ACCA

tel:+32 (0) 2 286 11 37

mob: +44 (0) 7809595008

Helen Thompson, ACCA Newsroom

+44 (0)20 7059 5759

+44 (0)7725 498654

Notes to Editors

1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

2. We support our 147,000 members and 424,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.

3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.