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Compliance: Global Regulations Coming to an Equilibrium?
There’s been doom and gloom about the US’s competitiveness in global finance, and many are blaming tougher US regulations as part of the problem. On Monday, McKinsey issued a report commissioned by New York’s Mayor Bloomberg and Senator Schumer that suggest that New York is losing its position as the global center of finance.
But the global pendulum on compliance may be starting to shift.
An EU directive is set to level the playing field and take the advantage from the London exchange’s weaker standards since the enactment of Sarbanes-Oxley. The new regulation, which goes into effect June 2008, is part of the EU’s 8th Company Law Directive on Statutory Audit and it will require auditors of foreign companies to meet European Standards or be delisted from European exchanges. Currently there are 228 non-EU companies listed on the London Stock Exchange.
From Ernst and Young
Critics in London are comparing the new rules to Sarbanes-Oxley and some say that the new rules could potentially be even more burdensome than Sarbanes-Oxley on foreign firms seeking to list on European exchanges. But what appears to be happening is a gradual worldwide convergence on governance and investor protection, and that’s good.
After the migration of many new company exchange listings to London, the UK’s BDO Stoy Hayward’s FraudTrack found that company fraud in the UK rose 33% between 2005 and 2006 and that the value of the reported fraud rose almost 40%. Many of the new London listings are from Chinese and Russian companies that may not have been able to stand up to SOX regulations. From this perspective, markets that can provide a high level of accountability to investors may be viewed as a competitive advantage.
