Liability deals 'won't happen' without backing from SEC

Deadlock: SEC chief Christopher Cox

Liability deals between auditors and multi-nationals could fail to happen if the government does not secure agreement from the US Securities & Exchange Commission on the arrangements, senior figures have warned.

The Department for Business, Enterprise and Regulatory Reform is in talks with the SEC, led by Christopher Cox, amid concerns that companies dual-listed in the UK and the US may not be able to enter limited liability contracts at all due to US regulations.

Discussions have been going on for ‘months,’ sources said, but there is little sign of progress.

‘We flagged this concern with BERR before the Companies Act was enacted and that’s 18 months ago now, and we asked government to take it up with the SEC,’ said PwC partner Peter Wyman.

‘Why they have failed to get a conclusion is completely beyond me. But I’m very clear that if they can’t get the right answer, then LLAs will frankly not happen in the listed market in the UK.’

‘The SEC has to say this is all right,’ another source said, ‘or US registrants won’t be able to enter LLAs. If it’s not cleared off, it does provide quite a problem ­ it’s their [BERR’s] job to have that discussion.’

The frustration in the market comes on the heels of broader concerns about the liability arrangements.

Some have suggested that the opt-in nature of the agreements means that it is difficult to see any being signed, since there is little incentive for companies to limit auditors’ liability. Some have even argued that the UK may have to go back to the drawing board to establish proportionate liability across the board.

US legislators have shown less enthusiasm for auditor liability arrangements than those in the UK and the EU.

Further guidance on the liability deals is expected from the Financial Reporting Council by the summer. The body declined to comment on the SEC discussions.

A spokesman for DBERR said: ‘The department has good relations with the SEC. We discuss issues of common interest from time to time, including this issue.’