Over the last decade London became a second home for billionaire resources oligarchs attracted by its stability and flexible tax laws.

Their companies soon followed as commodities empires from Kazakhstan’s Eurasian Natural Resources Corp. to India’s Essar Energy Plc filed initial public offerings on the London Stock Exchange, gaining access to a vast pool of investors and the imprimatur of a Western bourse. The listings provided steady work to the British capital’s bankers and lawyers.

Now, the trend has put U.K. financial regulators in a bind. A series of financial and boardroom controversies at some foreign billionaire-controlled businesses shows that the oligarchs are acting as if their companies are private, investors and analysts say. Regulators have responded by proposing to rein in the power of dominant shareholders while stepping carefully so as not to drive away foreign firms, which account for more than half of London banks’ IPO fees.

The measures may require independent directors be in the majority for companies with “controlling shareholders,” who themselves would be barred from influencing day-to-day operations.

“The proposed measures may succeed in curbing questionable corporate governance practices, but may also result in companies opting for destinations that don’t have as many rules governing IPOs,” said Christopher Laing, Deutsche Bank AG’s managing director for equity capital markets for emerging countries. “Markets like those in Hong Kong, Singapore, Amsterdam and Frankfurt are viable destinations for companies from emerging markets looking to list overseas.”

High Stakes

Much is at stake for the City, London’s financial district. Foreign firms accounted for 65 percent of the $8.1 billion that companies raised from IPOs in London last year, according to data compiled by Bloomberg. That’s up from 2010, when overseas businesses accounted for 54 percent of the $13.8 billion raised through initial share sales in London. Globally, London hosted 31 percent of all cross-border IPOs by amount raised last year compared with 55 percent in the U.S., according to PricewaterhouseCoopers LLP.

“There have never been any barriers preventing foreign companies from entering London,” said Clifford Tompsett, senior partner for capital markets at PricewaterhouseCoopers LLP in London. “It is perceived as a more open market globally.”

‘Different Rules’

That openness has contributed in part to the City’s troubles, said George Dallas, director of corporate governance at London-based F&C Management Ltd., which manages about 95 billion pounds in assets. “Some of the companies are from countries with different rules and standards of law and order,” he said.