18 January 2007

Telegraph: European audit rule could harm City prospects

A European directive could scupper City attempts to become the world's financial capital. Britain's corporate reporting watchdog fears the City is sleepwalking into a crisis that will threaten the Stock Exchange's appeal to foreign companies seeking to issue shares.

Paul Boyle, chief executive of the Financial Reporting Council, has told The Daily Telegraph that he is 'astonished' that few in the City have woken up to the impact of the EU directive governing the use of foreign auditors by companies seeking to list on European exchanges. Mr Boyle likened the regulations, contained within the 8th Company Law Directive on Statutory Audit, to the US Sarbanes-Oxley Act, which gave audit regulators power to force the auditors of any company listing in the US to meet America's auditing standards.

The Act led to an exodus of foreign companies from US exchanges and a surge in new issues in London - which put New York's position as the world's financial capital at risk. Mr Boyle said: 'The Americans have discovered if you introduce burdensome regulation people will go elsewhere. We have been the beneficiaries, but that may not continue to be the case.' The directive was approved by Government officials, calling into question pledges made by the Chancellor and his economic secretary, Ed Balls, that they will ensure the City retains its light-touch regulatory regime.

The regulations, which take effect in June 2008, require auditors of foreign companies to ensure they meet European standards. If they cannot, which the FRC says is likely, the companies using them would have to delist their securities from European exchanges.

There are 228 non-EU companies listed on the London Stock Exchange. The revelation casts a shadow over the future success of the London Stock Exchange as it unveils its final defence against the £2.7bn takeover bid by Nasdaq.

Charlie McCreevy, the EU internal market and services commissioner, issued a consultation on how the directive will be implemented in each country on January 8.

Adam Kinsley, director of regulation at the London Stock Exchange, said suggesting that foreign companies would be forced to delist from the stock market was 'scaremongering', adding that he did not expect any companies to have to delist as a result of the directive. He said: 'We are concerned that there were some unintended consequences with the original directive, but we welcome the consultation as it goes a long way to mitigating those issues.'

© Daily Telegraph