EU Warns on Sarbanes-Oxley Act

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Byline: Patrick Blum in Brussels

The European Commission has written to the US regulators to reiterate its serious concerns over the impact of the Sarbanes-Oxley legislation in the US on European companies. The commission's concern comes as many big European companies listed in the US face stricter disclosure standards than their home market.The threat of greater regulation has raised concerns that non-US firms listed in New York will face higher costs in raising capital in the US market. Some have talked of a possible delisting, while the New York Stock Exchange is worried that the new rules will ward off companies from listing in the US.

In a letter dated August 29 to Harvey Pitt, chairman of the Securities and Exchange Commission, Fritz Bolkestein, the EU internal market commissioner, warned against adopting solutions that could end up being "costly for business and inefficient".

He says he fully shares the US authorities' concerns over re-establishing confidence in the capital markets. "I can see that we share a common vision that could further regulatory convergence on the main issues addressed in the Sarbanes-Oxley Act."

But, he added, some of the Act's provisions would create unnecessary difficulties and extra costs for European companies with a secondary listing in the US, and for EU audit firms, by subjecting them to SEC regulations.

"This would seem to me to constitute a wholly unnecessary and burdensome second layer of public oversight for EU audit firms.

"Section 106 requires all big EU audit firms to register with the proposed Board, pay registration fees, apply US rules on auditing, ethics, and quality control, and subject themselves to the investigative and disciplinary sanctions of the board and the US authorities. I'm deeply concerned about the risk of exposing EU audit firms to a double regulatory regime which would be excessive, inefficient and disproportionate," he says.

Bolkestein says that the Act would allow a new US oversight board access to audit working papers of all registered foreign public accounting firms, as well as foreign firms that are not registered with the board, but which have contractual arrangements with a US domestic accounting firm.

"Apart from national professional secrecy laws and regulations that would make it impractical, if not impossible, to obtain access to audit working papers, the European Commission has serious confidentiality concerns over access to such papers outside the EU," Bolkestein says. …