I refer to the editorial Open (Business) Books (May 19). Increasing the amount of the penalty imposed by the Registrar of Companies under the Companies Act may be a good method for generating revenues, but do we really believe that higher fines will improve compliance?

The penalty as currently imposed for a one year delay in the submission of accounts in respect of a particular financial reference period amounts to Lm83, however since penalties are applied (on a daily basis) in respect of every financial reference period until the accounts are submitted, the cumulative amount in practice increases to several hundred and often thousands of liri when accounts are repeatedly not submitted for a number of years. It should also be made amply clear that payment of a penalty does not exonerate company directors from filing accounts.

Increasing the amount of the penalty in the case of repeated default may merit consideration, however one should not overlook the impact that the imposition of extremely high penalties would have on small companies, which constitute the majority of companies on the Maltese register. While compliance and enforcement are certainly very important, the imposition of unrealistically high penalties may not necessarily be effective nor guarantee compliance; and is not without its negative aspects. It is therefore important to seek to achieve the right balance between enforcement and economic activity.

While penalties are and will continue to be an important deterrent and a useful enforcement tool in the Registrar's hands, they should not be completely relied upon as the most effective measure to ensure that companies disclose their financial statements. It is the market itself which should provide this. The fact that a company fails to abide by its obligations at law and fails to disclose financial information speaks for itself and sends a clear message. Business partners, creditors and all stakeholders should be able to come to their own conclusions and take the appropriate business decisions. A company which loses business due to lack of disclosure is far more likely to comply than one which is placed into financial difficulties as a result of high penalties imposed by the Registrar of Companies.