The growing influence of in-house lawyers and company secretaries over the boards of listed companies could receive a further boost if proposals put forward last month by the Financial Services Authority (FSA) are implemented.

As part of the first overview of the rules governing listed companies in more than a decade, the FSA has issued a consultation paper calling for the introduction of a set of six high-level 'listing principles'.

These principles, which are intended to "inform the making and understanding" of the listing rules, will require a company to:

- enable its directors to understand their rights and responsibilities;
- establish and maintain adequate procedures, systems and controls;
- act with integrity with holders and potential holders of its listed securities;
- communicate information to holders and potential holders of listed securities in a clear and timely manner and ensure it is correct;
- ensure equal treatment for holders of the same class of listed securities; and
- deal with the regulator in an open and co-operative manner.

In a speech to the finance committee of the Corporation of London on 8 October, the FSA's new chief executive, John Tiner, said that these principles would ensure that "firms will be clear about the standards they are expected to achieve".

They are also intended to "help us [the FSA] interpret the rules in new situations, to enable us to communicate clearly the standards and behaviour we expect, and to help to ensure that the detailed rules are applied and interpreted on a consistent basis".

However, Ken Rushton, head of listings at the FSA, put the purpose of the proposed changes into a clearer context when he was quoted as saying that the principles would help to catch the "clever lawyers and clever companies" that get around the rules while breaching their spirit.

Instead of being able to take a literal interpretation of the rules, boards of directors of listed companies will, under the new regime, have to consider the overarching standards to ensure compliance. Also, they will no longer be able, according to the FSA, to claim to have been unaware of their obligations about price-sensitive information, or to blame their computer system.

Of particular significance to in-house lawyers and company secretaries will be the first two principles.

These require companies to enable directors to understand their duties and to put in place adequate procedures.

It seems highly likely that the boards of many companies – and particularly those without standalone compliance departments – will turn to their in-house lawyers and company secretaries to help ensure that these requirements are met, especially given that the principles will be enforceable as if they were rules.

Simon Gleeson, a financial services partner at Allen & Overy, says that the proposals fit in with the FSA's mantra that everything is the responsibility of senior management. "I do not think that the principles impose any new specific obligations, but what they do do is impose general obligations," he says. "There is pressure to increase the quality and extent of compliance systems."

The introduction of the six principles is likely to receive added significance if the FSA gets its way and is given the power to disqualify directors for a serious breach of the rules. As things stand the FSA can only fine or publicly censure a director of a listed company where the individual was knowingly involved in a breach, with disqualification being a matter for the Department of Trade and Industry.

According to Bill Carr, a corporate finance partner at CMS Cameron McKenna, the proposal to give the FSA the power to ban directors is of concern. "Enough issues are being put on the back of directors and non-executive directors, and this is another potential burden," he says.

The proposals, with their emphasis on companies having to put new systems in place, have also been attacked for adding disproportionately to the burden faced by small and medium-sized listed companies.

William Charnley, head of the London office of US firm McDermott Will & Emery, says that in general the proposals will have much less of an impact on major corporations such as BP compared to smaller companies. "Companies with a market capitalisation of say £100m are not going to have as many non-executive directors and executives with this sort of expertise and knowledge on their boards," he adds.

Another FSA proposal that has generated considerable controversy is to abolish the mandatory requirement for listed companies to appoint a sponsor for new issues or major transactions and replace it with a voluntary scheme. The authority admits in the consultation paper that only a minority would like to change the current regime but points out that other international centres, such as New York, do not have a corresponding requirement and that it adds to the cost of a London listing.

The genuine fear, however, is that it will be exactly those companies that most need the advice and expertise of sponsors that will take advantage of a voluntary scheme, often in the probably mistaken belief that this will help to cut costs. "The bigger entities will always have a sponsor even if it is voluntary," predicts McDermotts' Charnley. It has also been suggested that the FSA will have to do a lot more hand-holding.

Nevertheless, Cameron McKenna's Carr believes that overall the consultation paper contains some good ideas, citing in particular the moves to simplify the rules and make them more 'user-friendly' in general.

The greater emphasis being placed on directors' education and training – a recommendation contained in the Higgs report on corporate governance and continued here – is another positive development. "Clearly the better trained the directors are, the better job they will be doing," he says.

The introduction of a requirement to obtain approval from 75% of shareholders for delisting has also been widely welcomed at a time when the private equity boom and depressed share prices mean that many listed companies are looking to go private.

The FSA's proposals come at a time when the influence of in-house lawyers and company secretaries over boards of directors is growing faster than ever, at least when it comes to corporate governance.

In Legal Director's Corporate Governance Benchmarker, conducted in association with the London office of Halliwell Landau and published in April, some 40% of 100 heads of legal said that they expected their influence on the board regarding corporate governance to be greater in 2003-2004. The survey also found that company secretaries and general counsel felt they already had more influence over boards on corporate governance issues compared to auditors, finance directors or external counsel.

It will be some time before the FSA's proposals result in any actual changes to the rules – the consultation period will run until 31 January, 2004, with draft rules unlikely to be published until the third quarter of next year. The FSA expects final rules to be issued in spring 2005, with implementation that summer, when the European Union Prospectus Directive should come into force in the UK.

When they do come into force, however, in-house lawyers should expect their boards of directors to come knocking at their door.