Senior US official hints at relaxation of Sarbanes-Oxley

Tough, post-Enron company rules in the US may have to be relaxed to stem a flow of listings from New York to London, an American diplomat said yesterday.

Rushed through in 2002, following a wave of corporate scandals, the controversial Sarbanes-Oxley legislation lays down tough accounting rules designed to ensure that public companies make fuller disclosure of their financial position.

It prompted an angry reaction from this side of the Atlantic because European companies that are listed in the US are affected even if they comply with their own domestic requirements.

In an interview with the Reuters news agency the new US ambassador to the EU, C Boyden Gray, said: "My sense is that Sarbanes-Oxley could use some review in the United States."

Officials from the New York Stock Exchange said this week it was losing new listings in part due to the increased regulation.

Mr Gray said: "My gut instinct tells me ... that this has in a perverse way benefited London.

"There may be more IPOs [initial public offerings] listed now in London than there would have been. Some of the exchange activity may be a reflection of that. Certainly deregistration is."

The comments of the new ambassador, who was a Washington lawyer and Republican activist, reflect growing concern in the US about the impact of Sarbanes-Oxley on business.

Officials say that, within the next few weeks the US's Securities and Exchange Commission is due to hold a conference to review aspects of the implementation of the legislation, in particular section 404.

That requires each annual report to contain an "internal control report", including an attestation from the firm's auditor.

Since the introduction of Sarbanes-Oxley, several European companies have sought to delist from US exchanges, prompting fears that US financial institutions are losing out as companies raise capital elsewhere. In addition the Nasdaq stock market recently expressed an interest in bidding for the London Stock Exchange in a move which was interpreted by experts as a way of trying to gain a part of the new listings market, while avoiding the constraints of Sarbanes-Oxley.

Mr Gray said Barbara Matthews, a senior official at the US Treasury, would soon join the US diplomatic mission to the EU to give higher priority to the dialogue with European officials. "Maybe Barbara Matthews will come here and report back to her superiors as a result of having been here six months and say 'Gee whizz, we really need to look at Sarbanes-Oxley more carefully'."

The ambassador also alluded to problems in Europe with regulation, highlighting new legislation on the registration of chemicals, called REACH. Mr Gray said: "I equate the two. I am not sure if that's a bad comparison. Our SOX [Sarbanes-Oxley] is your REACH. Both sides can benefit each other by spurring the other side to look at these things internally."