The Sarbanes-Oxley Act of 2002 (SOX): A redundant regulation for the banking industry

Abstract

The aim of the paper is to show that, for banking institutions, Sarbanes-Oxley (SOX) regulation is redundant, and imposes additional unnecessary compliance costs. The banking industry in the United States is heavily regulated. Each of the regulations that banks must follow was developed in isolation by various governing bodies, causing many regulatory provisions to be redundant, overlapping or contradictory. In the wake of the Enron and WorldCom scandals, the Sarbanes-Oxley Act of 2002 was the Securities and Exchange Commission's answer to restoring investor confidence. However, the enactment of SOX was done hastily, and its effects on industries like the banking sector were largely ignored. SOX overlaps with previously enacted banking regulations such as the Federal Deposit Insurance Corporation Improvement Act, Bank Secrecy Act (BSA)/Anti-Money Laundering Directive (AML) and Basel II, among others. The redundant nature of SOX is costing banking institutions large sums of time and money. It is essential that banks strive to achieve a single compliance framework that can manage all of the regulations to which the bank is subject in order to mitigate the costs of redundancy.