Investment Exchanges and Clearing Houses Bill
Orders of the Day
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
Indeed, the hon. Gentleman makes a fair point, but I hope that regulators and legislators learn those lessons. Effective light-touch, risk-based and principles-based regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress, so that we ensure that the arguments in favour of the UK regulatory regime are put and understood in Washington.
I shall give some examples of how extraterritoriality imposes additional burdens on businesses. Under the Sarbanes-Oxley legislation, the US Public Company Accounting Oversight Board is required to report on foreign auditors with US-listed clients. It has recently exercised those powers by reviewing audits undertaken by Ernst and Young in the UK. Of course, UK auditors are already subject to audit inspection arrangements, so in a sense the additional review by the board imposes an additional cost on UK auditors. In effect, those costs will be borne by their clients in one form or another.
The regulatory overlap that arises from extraterritoriality is a problem, but it is not the only one: the situation has arisen with hedge funds when their management is based in the UK. The Securities and Exchange Commission has sought to regulate hedge funds by reference to the location of the hedge fund investor. The SEC has gone to some lengths to try to draw UK-based hedge fund managers into its remit.
The SEC requires firms with more than 13 clients to register with it, but it has looked beyond simply the number of direct investors to the next layer down. For example, a UK-based hedge fund could have, say, 10 investors—below the SEC limit—but if they each had 10 investors, the SEC would say that the hedge fund had 100 investors and it would be drawn into the net. So there is a continuing push from the SEC to draw more activities based outside the US into its remit, with the consequence of imposing additional regulatory burdens on those funds. Although the Bill tackles an aspect of extraterritoriality, we should be under no illusion that it deals with the issue in its entirety.