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SEC Statement: A Race to the Top: International Regulatory Reform Post Sarbanes-Oxley (Ethiopis Tafara)

SEC Statement: A Race to the Top: International Regulatory Reform Post Sarbanes-Oxley (Ethiopis Tafara)

by Rick Turoczy on September 11, 2006

This article identifies the widespread global adoption of the major provisions of the Sarbanes Oxley Act of 2002 (SOX). The global adoption of these provisions is interesting on a number of counts. As is the case in many industries today, the US financial services industry competes on a global scale. From this competitive vantage point, the industry has discovered — and at times loudly proclaimed — that their products and services are inextricably bundled with (or, depending on one’s perspective, burdened by) the domestic regulatory framework in which they operate. In particular, it has been argued by some that SOX may have generated regulations that are not cost justified, and that this may have created certain competitive disadvantages for the US market.

To be sure, given the technological revolution in connectivity, investors and issuers can largely meet in the jurisdiction of their choosing. Investors as well as issuers have choices about where to invest, where to raise capital and where secondary trading is to occur. In other words, they have some choice about which regulatory safeguards (and associated enforcement efforts) they conduct their financial activities under. Moreover, important economic characteristics (such as cost and risk) of financial services and products are affected by the particular (and inevitably costly) regulatory safeguards associated with any given jurisdiction, as backed up by the enforcement efforts in that jurisdiction. As a consequence, domestic regulations may admittedly have an impact on the global competitiveness of financial services and products, for good or potentially for ill.

While the reality may be a bit more complicated than either a race to the bottom or a race to optimality would suggest, the global adoption of the major provisions of SOX may shed some light on these and other issues.

SEC Statement: A Race to the Top: International Regulatory Reform Post Sarbanes-Oxley (Ethiopis Tafara)

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