WASHINGTON - The Big Apple could soon lose some of its shine and the United States may see its prominence fade as the centre of the world's financial markets if Congress does not move quickly to water down onerous new accounting rules, two top New York politicians warned yesterday.
New York Mayor Michael Bloomberg and federal Senator Charles Schumer from New York said the city's and the country's financial status is at risk because of post-Enron Sarbanes-Oxley corporate-governance rules being imposed on companies trading on U.S. markets.
"We can no longer take our pre-eminence in the financial services industry for granted," the two said with the release of a report based on interviews with 50 chief executive officers and a survey, conducted by McKinsey & Co., of 305 other executives in the financial-services industry.
Sarbanes-Oxley, brought in 2002 after the spectacular collapses of Enron Corp. and Worldcom Inc. because of fraudulent accounting, is increasingly coming under fire for going too far in trying to rein in the seemingly unbridled frauds among some of the country's major corporations.
In recent months, Henry Paulson, the U.S. Treasury Secretary, John Thain, chief executive of the NYSE Group Inc. and the U.S. Chamber of Commerce have also called for changes to Sarbanes-Oxley, named after Paul Sarbanes, a Democratic senator from Maryland and Michael Oxley, a Republican House representative from Ohio. Both have since left office.
To avoid additional accounting costs of at least USUS$10 million faced under Sarbanes-Oxley, some publicly traded companies on U.S. exchanges are moving to bourses in Europe and elsewhere.
"We are beginning our fight on a legislative level and on an administrative level to keep New York No. 1," said Mr. Schumer. "We already are seeing the signs, early signs, of weakening of our job base and so much else that matters in New York."
There are already signs companies trading in the United States are fleeing to other jurisdictions to issue shares. The United States represented about 20% of all initial public offerings last year, down from 35% in 2001, according to the Financial Services Forum, which represents the country's largest banks and insurers.
In addition, a survey by the Bank of England and the U.S. Federal Reserve showed that London extended its lead over New York as the world's leading market for currency trading last year, with a six-month average daily trading of US$1.06-trillion, compared with US$534-billion in New York.
Companies trading in the U.S. spent US$6-billion this year complying with the rules, according to a study by Boston-based AMR Research released in March.
Much of the concern focuses around smaller capitalized companies that have complained to Congress and U.S. regulators that the new rules -- they call for detailed accounting to eliminate fraud--cost too much.
The U.S. Securities Regulatory Commission has moved in recent weeks to ease some of the regulations, but both Mr. Bloomberg, a Republican and likely presidential candidate, and Mr. Schumer, a Democrat, said small companies should be permitted to "opt out" of certain provisions of the law as long as they disclose it to shareholders.
The SEC would not comment on the report's recommendations, except to say "We look forward to reviewing the report and its recommendations."
Not all agree the Sarbanes-Oxley law should be watered down.
The report "starts from a mistaken premise and reaches an erroneous conclusion," said Barbara Roper, director of investment programs for the Consumer Federation of America in Washington. "Investors come to our markets because we protect capital better than any other market in the world. If you start eroding those protections, you erode our best basis for competing."
. The conspiracy of they (the auditing companies) lobby for this regulation is flat out false. Here's your disprove: no one own the audit market or has monopoly of it.
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