Conduct of Business FSA CP43 - ACT Response
Mr Peter Moore
Investment Business Policy Department
FSA
10 April 2000
Dear Mr Moore
RESPONSE TO CP 43
We are responding on the questions that are most relevant for our membership, i.e. corporate treasurers and finance directors in medium to large companies.
Q 2.8 and 2.9 - Criteria for identifying intermediate customers
We support the approach of keeping the criteria objective and simple. However we feel that using as a sole criterion the size of net assets/capital would not work well in practice. Firstly, some major companies have small or negative net assets. Called-up share capital might help in some cases but the growing importance of information- as opposed to asset-rich companies could cause problems here. Perhaps more seriously, increased volatility in balance sheets arising from proposed changes in accounting standards could cause net assets in particular to be extremely volatile, so that companies might shift in and out of intermediate status.
In our response to a previous consultation paper we suggested turnover as one alternative or additional criterion. We now believe that a listing on a recognised exchange might be a better choice, as an additional criterion (i.e. minimum net assets/capital or listing on a recognised exchange). This could result in some very unsophisticated companies being categorised as intermediate but the suggested net assets figure of £5 million would include most of these anyway. Listing has the advantage of being very clear-cut, as long as it is carefully defined. Companies are listed or not, whereas net assets and turnover can oscillate around the cut-off size. Also, listing is an event at the time of which companies take on a number of new responsibilities and intermediate categorisation could conveniently be added to that number.
