SEC proposes relaxation of Sarbox for foreign firms

The Securities and Exchange Commission (SEC) of the US has proposed a relaxation of the Sarbanes-Oxley rules, allowing foreign companies listing on US exchanges an extra year to comply with the regulations.

Under the proposals, small and medium companies in the US and overseas firms will obtain a year's exemption from Section 404 of the Sarbanes-Oxley Act, which requires companies to establish stringent internal controls and for these processes to be checked by auditors.

Christopher Cox, chairman of the SEC, said: “By offering further relief for smaller companies and most foreign issuers, today's actions will allow time for the Commission and the Public Company Accounting Oversight Board to redesign Section 404 implementation in a way that is efficient and cost effective for investors.”

Sarbanes-Oxley, which was passed in 2002 in the wake of the Enron and WorldCom scandals, is designed to ensure that financial results published by companies are accurate. Critics of the legislation have blamed it for pushing international companies to list on exchanges in London or Hong Kong, rather than in the US.

John White, director of the SEC's division of corporation finance, told RiskNews: “This will allow companies to list in the US and then turn to the Sarbanes-Oxley process instead of doing both simultaneously. The extra year will make it much more attractive to list in the US.”