34 Pages Posted: 16 Mar 2008
This article argues that the European Union (EU) has been instrumental in moving the United States (US) Securities and Exchange Commission (SEC) from a policy of national treatment of foreign (non-US) issuers to a policy of mutual recognition of financial disclosure regulation based on convergence between US Generally Accepted Accounting Standards (GAAP) and international accounting standards (IFRS). Further, future initiatives based on a substantial equivalence model are under consideration by the SEC.
The mutual recognition concept in financial regulation was a construct of the EU. Despite arguments that the US SEC should similarly engage in mutual recognition of foreign financial institutions and public company disclosure documents, the SEC insisted upon national treatment of foreign issuers and financial institutions. At the end of 2007, however, the SEC determined to accept IFRS rather than US GAAP in SEC filings by foreign issuers. Further, the SEC has suggested that it may permit foreign stock exchanges and perhaps foreign broker-dealers to engage in business in the United States based on mutual recognition if a foreign jurisdiction has a regulatory regime that is equivalent to the regulatory regime of the US in terms of investor protection. This significant change in SEC policy was largely the result of political pressure put on the SEC by the EU and a cooperative effort on the part of the SEC and the EU. On the other hand, securities regulatory reform in the EU made such cooperation possible.
Keywords: European Union, SEC, Securities and Exchange Commission, financial regulation, GAAP, IFRS
JEL Classification: M41, M44, M47, G38, G15
Suggested Citation: Suggested Citation
Karmel, Roberta S., The EU Challenge to the SEC. Fordham International Law Journal, Forthcoming; Brooklyn Law School, Legal Studies Paper No. 101. Available at SSRN: https://ssrn.com/abstract=1105740