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European Union Officials Finds Sarbanes-Oxley Unhelpful

The passage of the Sarbanes-Oxley Act has created issues that will have to be resolved as part of creating a transatlantic securities market, in the view of Dr. Guenter Burghardt, the European Union's ambassador to the United States. In remarks before the European Institute in Washington, he said that the Sarbanes-Oxley Act has placed heavy and duplicative requirements on EU companies whose shares are listed in the US and even on EU companies who are merely subsidiaries of US-listed companies. Dr. Burghardt was speaking on behalf of Frits Bolkestein, Internal Market Commissioner.

He defined a transatlantic securities market as one in which investors on both sides of the Atlantic can trade as easily as if they were trading domestic products while in possession of adequate and timely information based on one set of principles-based global accounting rules. A transatlantic market, he continued, would be a transparent market underpinned by high and equivalent standards of regulation, effective day to day supervision, with regulators working together.

In this regard, the Sarbanes-Oxley Act has become a test case of whether EU-U.S. regulatory convergence can work in practice. In addition to imposing burdens on auditors of EU companies, some provisions directly contradict the national requirements of the member states where those companies and auditors are based. For example, Dr. Burkhardt called Section 402 of the act blatantly discriminatory. Section 402 prohibits loans by a public company to any of its directors or executive officers. He emphasized that EU officials are working intensively with U.S. authorities to repair the effects of this and to find mutually acceptable solutions. He emphasized that the EU and the United States must act now to tackle the real problems that are emerging.

In this regard, he noted that the EU has embarked on an intense dialogue with the Treasury and SEC and drawn up a concrete work program with basic objectives. First, new potential issues must be identified before they arise. This means listening to each other's comments on the potential effects of legislation before it is adopted, thus avoiding the time-consuming difficulties and costs of ex-post regulatory repair that has to be done on the Sarbanes-Oxley Act. Similarly, officials must educate each other on the details of their legislation and rules as part of an overall regulatory coordination effort.