Durrant Pate/Contributor

Recent trading suspensions of companies listed on the Jamaica Stock Exchange (JSE) have brought to the fore difficulties firms are facing in meeting and honouring regulatory compliance.

Junior market-listed companies are facing the most severe challenges due to them being bridled with regulatory requirements, which are imposed as a result of becoming publicly listed companies. Before becoming public, these companies operated with very little external supervision.

Junior market companies such as iCreate and IronRock Insurance Company have fallen into non-compliance with these regulatory requirements and have been suspended for breaching regulatory filing requirements.

In the case of iCreate, the suspension has been lifted with the creative and media company submitting its outstanding regulatory filings and is now in compliance. 

For IronRock, the suspension of trading earlier this month was done in keeping with the JSE’s Junior Market Rule Appendix 2, Part 4 (1) (e) Quarterly Financial Statements and JSE’s Junior Market Rule Appendix 2, Part 4 (2) (e) on audited annual financial statements.

The suspension is pending the submission of its 2023 audited financial statements and Q1 2024 unaudited financial statements. IronRock’s 2023 audited financial statements and first-quarter unaudited financial statements for the period ended March 2024 became due on March 30 and May 15, respectively, and are consequently 93 and 47 days overdue as at July 1.

Increasing complexity of regulatory frameworks

The increasing complexity of regulatory frameworks, coupled with a shortage of qualified resources, exacerbates the compliance challenges for these junior market-listed companies making compliance difficult, especially for the unprepared. It is therefore crucial for them to proactively plan, budget, and allocate resources for maintaining compliance, which will allow them to safeguard their listing status on the JSE, protect their brand image and value and help to build investor confidence in their companies and financial markets.

Amid greater focus on investor and consumer protection and increased regulatory oversight, the recent trading suspensions highlight the critical issue of regulatory compliance, particularly for SMEs.

Main market companies also challenged

The challenges in meeting and honouring the JSE’s filing requirements are not limited to junior market companies as seen in the recent case of Productive Business Solutions Limited (PBS), which was recently suspended and Canada-based Equityline Mortgage Investment Corporation, which was suspended last month with that suspension lifted less than two weeks later. 

We also see several other companies both on the main and junior markets availing themselves of the allowable lifeline by seeking the JSE’s permission to file late. Remaining in good standing to remain listed on the JSE entails meeting financial, governance, legal, and shareholder communication standards, which can be costly, especially for smaller companies. 

To properly meet regulatory requirements, companies must make allowances in their budgets and be adequately staffed to effectively comply with post-listing governance and regulatory requirements. Given that auditing costs are also rising, likely driven by a general shortage of qualified accountants doesn’t make it any easier to seek to meet and maintain these financial regulatory filings.

NCB Capital Markets cites a similar uptrend in audit fees is evident in companies listed on the JSE noting that, “SMEs that have spent five full years on the junior market have seen their audit fees more than double during that period. As an alternative to building out their compliance teams, SMEs are turning to third-party consulting but may face similar issues, as regulations become more complex.“

Increased compliance costs 

In addition, increased compliance costs can stem from training costs to educate existing employees and higher legal and professional fees. For instance, in 2023, FESCO’s audit and professional and legal fees grew by 65.7 per cent and 111.2 per cent respectively, relative to 2022.

The latter can be driven by company expansion, whether inorganically or organically. Additionally, regulatory and compliance matters continue to grow in complexity due to the introduction of the Environmental Social & Governance (ESG) criteria, cybersecurity and data privacy acts, which are expected to add to the compliance load and costs over time.