LIBA
/ London Investment Banking Association
6 Frederick’s Place, London, EC2R 8BT
Tel: 020-7796 3606 Fax: 020-7796 4345
Direct: 020-7367 5507 E-mail:

2 March 2007

Jürgen Tiedje

Head of Unit -Accounting and Auditing

Internal Market Directorate-General

European Commission

Avenue de Cortenbergh 107

BE-1000 Brussels

Belgium

By email to:

Dear Jürgen

CONSULTATION ON IMPLEMENTATION OF ARTICLES 45–47 OF THE DIRECTIVE ON STATUTORY AUDIT (2006/43/EC)

I am writing on behalf of the London Investment Banking Association (LIBA) to respond to the Commission’s Consultation on the Implementation of the Third Country Auditor provisions in the Directive on Statutory Audits (2006/43/EC)(the “Directive”), which was announced on 11 January. LIBA is, as you know, the principal UK trade association for investment banks and securities houses; a list of our members is attached.

Wewelcome this opportunity to comment on the implementation of Articles 45-47 of the Directive and we fully support the Commission’s practical approach to this issue.

We believe the Directive should over time make a very useful contribution to the success of the EU single market. In particular it should have the effect of increasing the protection of investors in securities issued by companies on EU regulated markets, and should also help to promote and harmonise high standards of corporate governance and regulation in both EU and global capital markets.

However, the introduction of new requirements applicable to the auditors of companies incorporated outside the EU represents, in the context of the current legislative and regulatory systems of at least some of the home states of such companies, a significant change. This changerequires careful handling so as to maximise the depth and liquidity of EU markets, while maintaining the availability of a wide variety of investment opportunities to community investors, and retaining opportunities to export financial services to third countries. As you know[1]we share the concerns expressed by a number of commentators that excessively rapid implementation of this change could create significant practical problems, and could potentially encourage companies registered in third countries which are considering listing to consider non-EU exchanges where there is no equivalent auditor regime. Any such move to non-EU exchanges could of course result in an actual decrease in the protection afforded to EU investors: precisely the opposite effect to that intended by the Directive.

We believe that other bodies, particularly the relevant regulatory authorities of the different EU member states and the representatives of their legal and accounting professions are the appropriate entities to comment in detail on the relative merits of the different possible ways of addressing these issues, and we would therefore confine ourselves at this stage to the following very general remarks:

  • The overriding priority should be to ensure that the relevant provisions of the Directive are introduced in a practical and effective way which does not result in a net decrease in the degree of protection afforded to EU investors in securities issued by companies incorporated in third countries.
  • The Directive envisages a system of mutual recognition and equivalence of third country systems. We agree with the Commission’s view that equivalence does not mean identical and we therefore support a principles-based approach that compares outcomes rather than detailed requirements. In terms of method of assessment, we are aware of suggestions that some form of “self-certification”might work well, at least in the early stages of the new regime. We think this idea merits further investigation, particularly in low risk circumstances.
  • As noted above, it is critically important to avoid an over-rapid implementation of the relevant provisions of the Directive that would risk unnecessarily reducing the attractiveness of EUcapital markets to third country issuers. Consequently we would strongly support the introduction of transitional measuresfor countries where full equivalence cannot be granted immediately, but where it can be demonstrated that there is willingness and ability to move towards a comparable public oversight regime within a reasonable timeframe. We note that other respondents have suggested a transitional period of four to five years, which seems to us to be a sensible period of time; we also think it makes sense also to allow for the possibility of providing an extension for those countries that have made reasonable progress but have yet to complete their transition. Overall, this should enhance cooperation and dialogue between the relevant EU and international authorities and provide an incentive for third countries to develop appropriate systems of audit regulation.

I hope the above comments are helpful. We would of course be delighted to expand on any or all of our views either in writing or in a meeting with you or your colleagues.

Yours sincerely

Ian Harrison

Director

1

LONDON INVESTMENT BANKING ASSOCIATION

LIST OF MEMBERS

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ABN AMRO Bank

Altium Capital Limited

Ambrian Partners Limited

Arbuthnot Latham & Co., Limited

Arbuthnot Securities Limited

Arden Partners plc

Banc of America Securities Limited

Barclays Capital

Bear, Stearns International Limited

BNP Paribas

Brewin Dolphin Securities

Bridgewell Group plc

Calyon

Cantor Fitzgerald Europe

Cenkos Securities Limited

CIBC World Markets

Citigroup Inc.

Close Brothers Corporate Finance Ltd

Collins Stewart Europe Limited

Credit Suisse Securities (Europe) Ltd

Daiwa Securities SMBC Europe Limited

Dawnay, Day & Co., Limited

Deutsche Bank AG London

Dresdner Kleinwort

Evolution Securities Limited

Fox-Pitt Kelton Limited

Goldman Sachs International

Greenhill & Co. International LLP

Hawkpoint Partners Limited

HBOS Treasury Services plc

HSBC Bank plc

ING Bank NV London Branch

Instinet Europe Ltd

Investec plc

Jefferies International Limited

JP Morgan Cazenove Ltd

J.P. Morgan Securities Ltd

KBC Peel Hunt Ltd

Kaupthing Singer & Friedlander

Lazard & Co., Limited

Lehman Brothers

Libertas Capital Group plc

Merrill Lynch Europe PLC

Mizuho International plc

Morgan Stanley International Ltd

NCB Stockbrokers Limited

Nomura Code Securities Limited

Nomura International plc

N M Rothschild & Sons Limited

Numis Securities Limited

Oriel Securities Limited

Panmure Gordon & Co

PiperJaffray Ltd

Sanford C. Bernstein Limited

Société Générale

3i Group plc

UBS AG London

WestLB AG

Winterflood Securities Limited

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2 March 2007

1

[1] See, in particular, the comments expressed on behalf of LIBA members at the 10 October 2006 meeting of the Auditor Liability Forum and in our 6 December email.