My Lords, UK companies are within the provisions of the Sarbanes-Oxley Act if they choose to list on the main US markets or are a subsidiary of a company so listed. I am aware that business has concerns about the prescriptiveness of some of these provisions, and I welcome the US authorities’ review of their application. In the UK, we consider that our more principles-based approach strikes an appropriate balance between regulatory costs and benefits.
My Lords, I thank the Minister for his reply. The Sarbanes-Oxley Act has certainly been a great promotional measure for the London Stock Exchange and the Alternative Investment Market. However, does the Minister agree that there is an increasing danger of regulatory creep from American regulators that threatens our own light-touch approach to financial regulation and some duplication of company reporting as well? For instance, companies with over 300 shareholders resident in the United States can be called to account by the Securities and Exchange Commission; it is not unlikely that the London Stock Exchange will become a subsidiary of NASDAQ next year, bringing US regulation to the heart of the City; and there have already been a number of visits to British companies by the US Public Company Accounting Oversight Board. How do we protect the light touch which the Minister himself says that we have?
My Lords, it is absolutely right that we are mindful of the risks of regulatory creep, which is why the Government have announced that they intend to introduce a Bill in the next parliamentary Session to enhance the FSA’s powers. The proposed changes will allow the FSA to stop recognised investment exchanges and clearing houses from making changes in their regulatory provisions when those changes are likely to be disproportionate to the end that the FSA seeks or would not pursue a reasonable regulatory objective.
My Lords, a range of issues arise under that, particularly concerning the eighth directive, which relates to auditing. Most of that directive is already included in UK provisions, and consultation on the residual issues should start next year. There are other issues to which accounting standards apply, and there is discussion with the US and UK authorities about convergence on those as well. There is a range of issues to consider.
My Lords, I congratulate the Government on not rushing into heavy and detailed regulation to counteract fraud, as the US Congress did. At the same time, does my noble friend agree that companies must demonstrate a culture of trust, openness and common purpose if the looser regulation is to be retained?
Yes, my Lords, I agree. As my noble friend will know, UK corporate governance has undergone a substantial number of changes since the mid-1990s. The UK approach places more emphasis on the application of principles rather than rules to provide flexible but robust standards. The combined code is the result of that process. However, we need to be mindful that, whether it is Sarbanes-Oxley or the UK approach through the combined code, this is about getting good corporate governance. Along the way on issues of fraud, we must get out of the habit of thinking, as I believe some have done, that there are no victims of white-collar fraud. It was the major corporate scandals in the US, in particular, that drove Sarbanes-Oxley.
My Lords, does the noble Lord agree that, while the Government certainly deserve to be commended for their actions on the extraterritoriality of Sarbanes-Oxley, the really big thing that they ought to do is safeguard the position of British citizens from the unequal treatment of the extradition laws as between the United Kingdom and the United States? This is now not only a real threat to the liberties of British subjects but is causing increasing concern.
My Lords, noble Lords would not expect me to comment on individual cases that have been the subject of some discussion in the House in recent times. The noble Lord will be aware that an extradition request is considered by the courts under the Extradition Act 2003, which contains full safeguards for defendants, and that, as defined by the Extradition Act, for the US to make an extradition request to the UK for an offence in which no conduct took place in the US, it will also have to be an extraterritorial offence under UK law. I understand that the US is moving towards ratification of that treaty.
My Lords, will the Minister confirm that the Government are well aware of the way in which the Sarbanes-Oxley Act has impacted on the attractiveness and competitiveness of the United States capital market? So much so is that the case that, I believe, Mr Hank Paulson is conducting a review of it with a view to amending it. Can the Minister further confirm that the Government will bear that in mind when it comes to drafting regulations required under the Companies Bill, which will return to this House in a short time?
Yes, indeed, my Lords. The impact of Sarbanes-Oxley has been felt in the US, as has been recognised by the SEC and the authorities there. It is certainly something of which the Government here are mindful, and they will keep it at the forefront of their thinking. We look forward to our further discussions on the Companies Bill. We have had plenty in the past, but the Bill is coming back to us next week.