Hong Kong’s accounting regulator signaled a tougher supervisory stance on audit firms with weak track records, while encouraging underutilized firms to take on a greater role in supporting the city’s capital markets, according to Bloomberg.

The Accounting and Financial Reporting Council may require audit firms with substandard performances to scale back their workloads when renewing their licenses, Chief Executive Officer Janey Lai Chui-pik said on Tuesday on the sidelines of a press conference. At the same time, the regulator sees room for expansion among auditors that currently handle few or no listed company accounts, unlocking additional capacity to meet growing demand.

The remarks come after the market regulator and stock exchange sounded the alarm on listing application quality amid a boom in initial public offerings in the Asian financial hub. The Securities and Futures Commission put a cap on lead bankers to work on no more than five deals at a time. It also initiated a review of 13 investment banks in January to tackle the substandard performance.

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In the coming year, it will focus on how firms identify and address quality risks arising from the IPO surge, according to the watchdog’s annual inspection report released Tuesday. The AFRC issued an open letter in February, warning insufficient auditing resources and expertise could put pressure on IPO quality.

About 64 firms are listed on the AFRC registry as “public interest entity” auditors that can sign off on listed company financial accounts. At least nine aren’t named as principal auditors for any listed firms, according to data compiled by Bloomberg News. AFRC has no immediate plan to impose a blanket industrywide limit on deal counts as audit jobs vary in size, Lai added.

Most newly-listed firms in the Hong Kong Special Administrative Region are large Chinese mainland companies that work primarily with mainland investment banks and auditors, said Andrew Fan Chun-wah, a lawmaker and director and shareholder of Fan, Mitchell & Co, one of the so-called PIE auditors with no principal auditor engagements with listed firms.

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The accounting market has also suffered from suppressed audit fees, making it hard to justify the cost of retaining a professional team, said Fan.

“It is not our intention to lie flat and do no work,” said Calvin Tse, partner of Sinno International CPA Ltd, another PIE firm that doesn’t do primary auditing work for listed companies. He said price wars and limited resources restrict their ability to take on bigger companies even when clients reach out to smaller firms.

Both Fan and Tse’s firms work on internal control projects for listed companies, they said. These functions, unlike a principal auditor appointment, require no PIE auditor status.

“Smaller firms are supposed to be in a better position to provide bespoke services, but challenges abound,” said Tse.