Financial regulation: lifting the burden without losing the benefit

At the end of last month, the deadline for responses to the BIS's Simpler Reporting for the Smallest Businesses discussion paper expired. No doubt civil servants are beavering away now, drafting 'red tape cuts' aimed at lifting the burden of financial reporting for small businesses. The goal is, ostensibly, laudable and has the potential to be wide-reaching - small businesses make up 99.9% of UK enterprises.

However, the proposals in the paper have been criticised and the sources of that criticism are well worth paying attention to. For example, leading accounting software company Xero has called on the government to make reporting better, not simpler.

As former financial journalist and our guest blogger Joe Carstairs has pointed out, the current difficult economic situation is "a direct result of uncertainty about economic risk". The recent euro crisis can in part be attributed to lenders receiving insufficient or inaccurate information regarding the financial health of Greece and other countries.

Weakening the reporting requirements for UK SMEs may not trigger global recession or bring down currencies, but there are plenty of reasons to maintain quality financial information. A bank requesting a loan or an investor looking to inject cash is unlikely to be satisfied with incomplete or minimal financial information, even if Companies House and HMRC are.

Accountants surveyed by Xero clearly agree , calling the outline suggestions "an over-simplification". On top of this, they point out that any changes will themselves increase burdens in the short term - an "unnecessary, and costly, task".

The government needs to consider the fact that technology can now solve many of the problems caused by reporting requirements. The days when every additional piece of financial information meant hours of administration are gone. Submitting comprehensive accounts no longer means a lengthy photocopier session and a trip to the post office.

New technologies mean that financial reporting can be made almost effortless and instantaneous. New data standards such as iXBRL and OFX quickly and easily put financial information into recognized formats, and new technologies such as CreditPal or Yodlee allow key financial information to be extracted with the click of a mouse. As more and more accounting platforms move online, this trend will only accelerate.

All the signs therefore point to more standardisation, not simplification. The government should look to get its own house - or rather, multitude of houses - in order first. HMRC, Companies House and other statutory bodies require a range of information in a range of formats, often still requiring the filling out of forms and sometimes even that trip to the post office.

I am currently working on a new venture - Funding Options - that streamlines business financing by allowing finance requests and quotes to be standardised and submitted online, giving SMEs more choice and availability in finance.

If we can successfully get together with industry partners, technology companies and banks to make this happen, why can't the government do its bit and encourage initiatives that lift the burden of reporting without sacrificing its benefits? As the Technology Strategy Board - the UK's national innovation agency - recently commented on our own solution, this is something that "could transform bank lending for small businesses".