WASHINGTON -- The Bush administration will review the regulations governing US financial markets to make sure they don't harm the country's ability to compete in the global economy, Treasury Secretary Henry Paulson said yesterday.
In his first major speech addressing market regulation, Paulson said the administration will convene a conference 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 told the Economic Club of New York.
Paulson said he did not believe the 2002 Sarbanes-Oxley Act needed to be amended, but he said changes were needed in its enforcement. The law 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 complain that Sarbanes-Oxley imposes unreasonable costs and hurts the competitive position of US capital markets, leading to a decline in the number of companies choosing to be listed on the stock exchanges.
Paulson said regulations need to be examined to make sure the country remains competitive with foreign capital markets.
"Does the decline in initial public offerings [of stock] in US capital markets signal potentially broader challenges to our competitiveness?" Paulson asked.
Paulson said the "single biggest challenge" was Section 404 of the law, which requires companies to assess internal controls to ensure financial reporting is 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 Section 404 at a Dec. 13 public meeting. Last week, SEC chairman Christopher Cox said changes would be aimed at reducing compliance costs while still ensuring that investors are protected.
Paulson said that he did not believe there was a "single principle embedded in Sarbanes-Oxley that is ill-founded."
Reacting to Paulson's speech, Senator Charles Schumer, a New York Democrat who sits on the Senate Banking Committee, said he looked forward to working with the administration to examine possible changes.
"There's a gathering consensus in the administration and in the Congress that we need to do a complete and comprehensive review of America's and New York's worldwide competitive position in financial services," Schumer said.
In September, Paulson praised the formation of a group of high-level business executives and academic experts that is examining the impact of the Sarbanes-Oxley law. The influential group is drafting proposals touching on such areas as corporate governance rules, class-action lawsuits, and criminal prosecution of companies.
In his speech, Paulson said that the administration wants to ensure a proper balance between protecting investors and not stifling innovation. He said US regulators need to be mindful of the growing competition from expanding financial markets such as London's and Hong Kong's.
"We should not engage in a regulatory race to the bottom, seeking to eliminate necessary safeguards for investors in a quest to reduce costs," he said. "The right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth, and competitiveness."