Stricter regulations for large unlisted firms? Bad idea

livemint.com:

reported. It is an extraordinary ask of the committee, consisting of business, legal, banking and markets experts, considering that it was set up in 2019 with the opposite mandate – of advising the government on legislative changes necessary to improve the ease of doing business.

As per the report, the government is mulling imposing stricter disclosure norms on ‘large’ (although the parameters for classifying an unlisted entity as large have not been decided upon yet) unlisted firms, including financial and regulatory compliance reporting on a quarterly basis. It is only going to add to the compliance burden of such entities and can hardly be considered as improving the ease of doing business.

Of the more than 22 lakh companies registered with the Ministry of Corporate Affairs, only a tiny fraction -- around 5,300 -- are publicly listed. The rest are unlisted for the simple reason that the scale, scope and nature of their business do not warrant raining equity capital from the markets, which would bring in the need for listing – and the attendant regulatory and reporting requirements.

According to the report, the government is concerned with recent incidents of governance failures at some large unlisted entities, including start-up unicorns which are valued in billions of dollars, and have a large scale of operations, but continue to be closely held and are not listed. Since unlisted entities come under a lighter regulatory framework, the fear is that serious issues at such entities, which may have systemic repercussions, will not come to notice till it is too late.

That is not an unjustified concern. However, it is not as if the authorities are short of provisions under existing acts and rules to keep a close eye on