After Sarbanes-Oxley, many U.S. commentators criticised the severity of the 2002 Act, highlighting that many firms had left the U.S. for more business-friendly environments. In a bid to prevent the same thing happening today, Barney Frank, chairman of the House financial services committee, has stated that firms will not be able to do business in the U.S. at all unless they agree to U.S. regulation.
Fixing offshore centres in his sights, Frank has come to the conclusion that the U.S. market is too important to be excluded from. By barring those companies who are based offshore in countries with lax regulation from doing business with the U.S., Frank is attempting to extend Americas regulatory reach beyond its borders.
Once we have rules . . . we will say to anybody who wants to be an outlier, you forfeit your right to participate in the American system, Mr Frank told the Financial Times. We will instruct the [Securities and Exchange Commission] and Treasury and the Fed to deny access to the American financial system to any country that holds itself out as a haven to escape our financial regulation.
Frank will have to win over Congress and face stiff lobbying from multi-national companies to make this regulation a reality.
In 2008, a study by Joseph Piotroski of Stanford University and Suraj Srinivasan of Harvard Business School titled “Regulation and Bonding: Sarbanes Oxley Act and the Flow of International Listings” discovered that smaller international companies were more likely to list on UK stock exchanges than in the U.S. after the Act was passed. Rather than watch business move abroad. Frank is attempting to bar business entirely.
We are determined to protect our people against any outliers, Mr Frank said to the FT.
Giles TurnerNews Editor