Administration to review U.S. market regulations

The Bush administration will review the regulations governing America’s financial markets to make sure that they don’t harm the country’s ability to compete in the global economy, Treasury Secretary Henry M. Paulson Jr. said Monday.

In his first major speech addressing market regulation, Paulson said the administration would convene a conference on capital markets and economic competitiveness early next year.

“Our capital markets remain strong and competitive, but they face some significant challenges that do not lend themselves to easy answers or quick fixes,” he said in a speech to the Economic Club of New York.

Paulson said he did not believe that legislation was needed to change the 2002 Sarbanes-Oxley Act, but he said that changes were needed in the enforcement of the law, which was passed in response to a wave of corporate accounting scandals.

“We need to implement the law in ways that better balance the benefits of the legislation with the very significant costs that it imposes, especially on small business,” Paulson said.

Some companies are complaining that Sarbanes-Oxley has gone too far and is imposing unreasonable costs. Critics contend that the law is hurting the competitive position of American capital markets, leading to a decline in the number of companies choosing to be listed on U.S. stock exchanges.

Paulson said financial market regulations needed to be examined to make sure that this country remained competitive with foreign capital markets.

“Does the decline in initial public offerings [of stock] in U.S. capital markets signal potentially broader challenges to our competitiveness?” Paulson asked in his remarks.

Paulson said the “single biggest challenge” in Sarbanes-Oxley was Section 404 of the law, which requires companies to assess internal controls to ensure that financial reporting is accurate and reliable.

He said this provision should be implemented “in a more efficient and cost-effective manner.”

The Securities and Exchange Commission is expected to review changes dealing with Section 404 at a Dec. 13 public meeting.

In a speech last week, SEC Chairman Christopher Cox said the changes would be aimed at reducing compliance costs while still ensuring that investors were protected.