Harvard Law School Professor Hal S. Scott, director of the school’s Program on International Financial Systems, testified on June 17 before U.S. House of Representatives Committee on Financial Service on the United States and the European Union informal Financial Markets Regulatory Dialogue.

According to Scott, the most important issue facing the two markets is whether the United States will accept the International Accounting Standards (IAS) that the E.U. is set to adopt in 2005.

“Absent a change in SEC policy, E.U. firms which state their accounts in IAS will be unable to access the U.S. public market. This could lead the E.U. to take the position that U.S. firms could no longer use U.S. GAAP in the E.U. market,” Scott told the committee. “This could have a severe effect on U.S. firms issuing capital abroad and further increase the segmentation between the U.S. and E.U markets. This is an important issue that must be resolved.”

Scott also advocated that the Dialogue be transformed into a broader initiative–the establishment of a Trans-Atlantic Market in Financial Services. The goal would be to adopt common disclosure, distribution and enforcement rules in both markets that would improve their efficiency. Both sides of the Atlantic could continue to compete, however, over ideas as to what these common rules should be.

Scott’s written testimony was co-authored with Kenneth W. Dam, a law professor at the University of Chicago, and former deputy secretary of the Treasury.

Click here to read Scott’s entire testimony.